Analysts say the worst of the retail downturn may be over

UK sales rose by 0.7% from the previous three months, the Office for National Statistics (ONS) reported.

High Street sales have been flat for much of 2005, with higher fuel bills and debt repayments hitting spending.

However, the Bank of England predicted on Wednesday that UK consumer spending would pick up next year.

Modest spending

The latest three-monthly figures followed growth of 0.4% in the three months to September.

It appears that significant discounting is still needed to boost sales volumes Howard Archer, Global Insight

High Street retailers reported a general increase in sales, although sales at clothing stores remained flat.

A fall in sales by catalogue mail order companies also hit sales for non-store retailers, which slipped by 3.1% during the three months to October.

Analysts welcomed the overall rise in retail sales, but remained cautious about the prospects for a broader recovery.

"The downturn in the High Street might be past its worst, but spending is still growing at pretty modest rates," said economist Jonathan Loynes of Capital Economics.

'Significant discounting'

On a monthly basis, retail sales rose by a more modest 0.2% in October, the ONS said.

That gave an annual rate of growth of 1.5%, the highest level since June.

However, the latest ONS figures suggested that many High Street retailers were increasing the volume of their sales at the expense of profit margins.

Prices for goods were on average 1.1% lower in October than at the same time last year.

"It appears that significant discounting is still needed to boost sales volumes," said Howard Archer, an economist with Global Insight.