The retreat by consumers from the high street slowed slightly from April, despite prices rising at the fastest pace for 16 years, a key CBI survey found today.

Sales fell in May for the second consecutive month but the fall was less sharp than expected. They are forecast to rise next month.

The figures spell the latest blow to fast-fading hopes for any further cuts in interest rates over the summer.

The survey’s indications of a modest revival in sales since April, coupled with the latest evidence that retailers are still attempting to drive up prices, immediately reinforced the City’s expectations that interest rates will stay on hold for some time.

The Bank of England’s Monetary Policy Committee (MPC) meets to set rates next week and is likely to be alarmed by the latest signs of mounting price pressures from the high street, which come as it expects headline inflation to reach new highs over the summer months.

The CBI’s survey reported that 56 per cent more retailers said that they had raised prices this month than said they had cut them - the highest such proportion since May 1992. A net 52 per cent of retailers said that they are also planning to raise prices again in June.

The price pressures come as retailers battle to shore up their margins in the face of soaring costs for energy and stock, the prices of which are being driving up by steep gains in raw material costs as well as rising import bills, triggered by a sharp decline in the pound in recent months.

The increased competition for trade, sparked by consumers’ growing reluctance to spend amid worsening economic conditions, is yet to do much to cap these inflationary trends, the survey suggested.

The CBI’s finding that sales revived a little last month will add to the MPC’s uncertainty over the state of high-street trading. Despite gloomy survey findings from the CBI and the British Retail Consortium in recent months, official retail sales data have pointed to more buoyant sales, although the Bank has said that it is partly discounting these.

Today’s headline CBI gauges of sales this month showed that only 28 per cent of retailers said that sales had risen compared with a year earlier, while 42 per cent said that they fell. The net balance of minus 14 per cent reporting declining sales at the tills marked a pick-up from the balance of minus 26 per cent last month.

Sales for food retailers, including the leading supermarkets, were strong, while sales of clothing stabilised after a poor April that was blamed on the weather, the CBI said.

A key area of weak trading was for big-ticket items, such as furniture and electrical goods, which are closely linked to housing market conditions. As evidence piled up that house prices are tumbling, with the Nationwide Building Society reporting today that prices plunged by 2.5 per cent this month, sales of these products are being hit hard, the CBI found. Sales of furniture and carpets were especially weak, with a net 84 per cent of retailers reporting that these are falling compared with a year ago.

Ian McCafferty, the CBI’s chief economic adviser, said that, while it was encouraging that retailers expected some recovery in sales in June, the outlook remained gloomy overall and conditions were set to remain tough.

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