ECONOMISTS are calling for an overhaul of the way in which the health of Britain’s high streets is measured, after official data yesterday showed retail sales growth falling to a record low.

Retail sales figures published by the Office for National Statistics (ONS) showed that sales values in the nation’s shops rose at their weakest annual rate since the series began in the late 1940s.

But City analysts are increasingly questioning the weight given to a data series set up by the Board of Trade in the era of rationing — long before the services-based economy, let alone the era of mobile phones and the internet, had got off the ground.

Critics say the retail sales index, which is widely seen as the leading monthly indicator on the state of consumer spending, has failed to adapt to modern spending habits. As such, it can often give a partial or even distorted impression of the health of the economy.

Ross Walker, an economist at RBS Financial Markets, is among those calling for an updated measure of consumer spending. “It would be helpful if in addition to monthly retail sales numbers we had a monthly estimate for household consumption,” he said.

“If we had that then it would be easier to analyse the economy and markets might be a bit less jumpy.”

Retail sales, which are roughly defined as goods bought in shops, account for only about 34 per cent of consumer spending.

That figure has dwindled for two reasons. Firstly, Britons are spending less of their monthly budgets in shops, and more of it on services such as school fees, transport, rent, or dining out at restaurants.

As real incomes rise, non- essential services take a growing slice of the pie. At the same time, global competitive pressures from China and India have kept the price of retail goods such as clothing and food from rising in line with the rest of the economy.

The second problem is that the ONS has chosen not to add many innovations of recent years, such as mobile phone bills or music downloads, to the definition of “retail”. Emerging businesses such as mobile phone ringtones, or the music download industry, are unlikely to be added to the definition until 2007 at the earliest,, when the next five-year revision of the classification is due.

The retail sales index continues to exclude all phone bills, despite the exponential increase of mobile phone usage among consumers.

Retailers such as Carphone Warehouse even have to exclude sales of mobile top-up cards when completing their survey forms.

The dividing line between retail and non-retail is not clear-cut. Online shopping is included, but online sales by unregistered users of auction sites such as eBay are not recorded.

Sales of cars and petrol do not make the figures, and nor do most services, but sales of commodities to customers abroad are included.

The difficulty lies in the way in which the survey is compiled. The ONS carries out a monthly poll of about 5,000 retailers, which includes every one of the roughly 900 retail companies that employ more than 100 staff, as well as a selection of smaller businesses. Supermarkets and clothes stores make up nearly half of the total by value.

Sales in outlets not classified as shops, therefore, are not monitored.

Buy a muffin in a newsagent and it will add to retail sales. Buy it in a coffee shop and it will go unrecorded.

To take another example: a Sony computer bought from John Lewis would feature in the statistics, but a Dell computer bought directly from the manufacturer on its website would not show up.

The only gauge which the ONS provides for the rest of consumer spending is its quarterly estimate of household expenditure, which is published several months after the event.

Mr Walker said: “Services is about 75 per cent of the economy, but we really don’t have very much to guide us on what’s happening to the three quarters of the economy on a monthly basis.”

Mervyn King, the Governor of the Bank of England, drew attention to the pitfalls in the retail data in a speech in January. “It is quite possible, indeed likely, that spending on services, such as leisure and holidays, behaves rather differently from sales of goods on the high street. So retail sales are not always a good guide to movements of consumer spending as a whole,” he said.

Commenting on the difficulty of assessing sales levels in December, he said: “For those reasons we should recognise that the true meaning of the Christmas story will not be revealed until Easter — or possibly much later.”

Nick Palmer, head of the retail sales index branch at the ONS, said that the retail data followed international standards enforced by Eurostat, the European statistics agency.

Asked whether mobile phone bills, for example, should be included in retail sales, he said: “It’s a good question, but we have got the rules and we are sticking to them for consistency with other countries.” He added that the ONS was in the process of constructing a monthly measure of GDP, although it would not be available for several years.

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