Retailers hope for their best Christmas in recent years

Shoppers likely to bring forward purchases to beat VAT increase on 1 January

Tentative signs of life are returning to Britain's high streets, according to the latest survey of the retail sector. Sales grew "modestly" over the year to October, and at the most positive rate in almost two years, the Confederation of British Industry's report said.

For once, the CBI survey and official government statistics at least appear to be pointing in the same direction: one of the few bright spots in last week's growth data for the third quarter was a 1 per cent rise in retail sales, while the economy as a whole contracted by a shocking 0.4 per cent.

The figures suggest that the nation's retailers may enjoy their best Christmas in years. Shoppers will be encouraged to bring forward purchases to beat the increase in VAT, which is scheduled to return to 17.5 per cent on 1 January, and profit margins should improve after the collapse of major players such as Woolworths.

Yesterday, the CBI retreated its call for a "short extension" of the VAT cut to help shops cope with the alterations at their busiest time of year. Asked by the CBI about their sales over the year to October, 41 per cent of retailers said volumes had risen, while 33 per cent said they were down. The resulting balance of 8 per cent was an improvement on September's broadly flat sales, and the highest since December. A balance of 19 per cent of respondents expect sales volumes to improve – the most optimistic reading since July 2007.

The CBI's data also supported signs of stabilisation in the housing market, with stores selling items traditionally associated with movement in the property market edging up.

Andy Clarke, chairman of the CBI's distributive trades panel and the chief operating officer at Asda, said: "The outlook for November is encouraging. But overall the economy remains troubled and some retailers will find the recovery slow and painful.

"It is heartening to see signs of life in sectors related to the housing market, particularly those retailers selling white goods and furniture, who have had a torrid two years. And we think some consumers will bring forward big-ticket purchases to beat the VAT rise in January."

Sales of durable household goods, furniture, carpets and books all rose during the year, as did those of clothing and and groceries. However, sales volumes fell at chemists and DIY stores.

Despite the Government's vehicle scrappage scheme, motor dealers are selling fewer cars than they were at this time last year, and they can expect customer interest to sag when funding for the scheme runs out, probably in February. Howard Archer, the chief UK economist at IHS Global Insight, said: "Given that consumer spending accounts for 65 per cent of GDP, the CBI's survey boosts hopes that the economy will finally return to growth in the fourth quarter. However, many consumers are keen to limit their expenditure due to serious concerns about the economy and their jobs, as well as the desire to improve personal finances."