Retailing and manufacturing activity both slowed last month to their weakest pace this year, as consumers felt the pinch of higher interest rates and the strength of sterling took its toll of exports.

Leading surveys of the high street and industry yesterday suggested that the economy is continuing to slow gradually. But indications that pricing pressures remain strong mean that the Bank of England is unlikely to react by cutting interest rates next week, analysts said.

The CBI Distributive Trades survey showed that sales were below average in October for the third month in a row, with shoppers reluctant to splash out on autumn clothes ranges and seeking out bargain prices. Just 10 per cent more retailers said sales volumes were up than said they were down, the weakest such balance since November 2006, the survey revealed.

Paul Dales, of Capital Economics, said that the survey could imply a sharp drop in official sales growth from 6.3 per cent to about 3.5 per cent. “It may be the first sign that higher interest rates are starting to bite,” he said.

John Longworth, executive director at Asda and chairman of the CBI’s Distributive Trades Panel, said: “It is clear that the buoyant trading period enjoyed earlier this year has tailed off.”

Manufacturers were similarly down-beat, reporting a return to more normal levels of activity from the surprisingly brisk pace of growth over the summer, the CIPS/RBS purchasing managers’ index (PMI) suggested.

The headline index dropped to 52.9 in October, from 54.7 the previous month, on a scale where any figure above 50 indicates rising activity levels. It was the lowest reading since December 2006. New orders rose at their slowest pace since August 2006, driven by a sharp slowdown in export orders, while employment growth also unravelled.

Geoffrey Dicks, of RBS, said exports were suffering from weaker overseas demand and the effects of a rising pound.

Signs that housing may also be facing a slowdown prompted Home-track, the property website, to forecast that property prices would rise by just 1 per cent in 2008, a fall in real terms.

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