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U.K. August Retail Sales Beat Forecasts

British retail sales volumes rose more strongly than expected in August but retailers had to slash prices for a second consecutive month to lure in customers, official data showed on Thursday.

The Office for National Statistics said sales rose 0.6% last month, taking them up 4.9% on the year -- the strongest annual gain since March. That compared to analysts' forecasts for a rise of 0.1% on the month and of 4.0% on a year ago.

The figures showed growth was strong across most sectors, except household goods, which almost completely reversed the previous month's rise.

Food sales rose 1.3% in August, the biggest monthly gain in more than a year and clothing and footwear sales recorded a 1.6% rise.

August's unexpectedly strong sales growth was supported by heavy price discounting, indicating that trading conditions for retailers may be getting tougher.

Major High Street stores John Lewis, Next and French Connection have all warned that higher borrowing costs are making consumers more reluctant to spend.

The Bank of England has raised interest rates five times since August last year. However most economists now think rates have peaked at 5.75% and evidence of price discounting is likely reassure policymakers that inflation pressures are easing.

Figures earlier this week showed consumer price inflation eased further in

August to 1.8%, its lowest in more than a year, giving policymakers scope to cut interest rates if the current turmoil in credit markets persists.