Shoppers gave retailers a much-needed boost last month as confidence picked up after the war in Iraq.

According to the CBI's closely-watched distributive trades survey, 40 per cent of retailers said business in May was better than a year ago compared to 26 per cent who said sales were lower.

The balance of 14 points marks the second month in a row in which more retailers said trade had picked up than disagreed.

The figure shows an improvement on the April survey which showed a balance of ten, marking an extension of the so-called "Baghdad bounce".

It was the first time for six months the respondents agreed sales were above average for the time of year and retailers were optimistic the trend would continue next month with a balance of 17 points pointing to further improvement.

But the study also showed retailers' willingness to spend money on buildings, vehicles or equipment and other big investments was at its lowest level for more than 11 years.

While 25 per cent of respondents said they expected to authorise more capital spending in the next year than in the past 12 months, 45 per cent said they would not.

Alastair Eperon, chairman of the CBI's distributive trades panel, said: "Retailers expect some improvement in business conditions during the second half of the year but that is only relative to the weakness of their current situation.

"Nervousness about how sustainable the sales recovery will be has severely hit retailers' willingness to commit to investment."

The study also showed retailers felt confident enough to put prices up - with 33 per cent saying they were charging more for their products than a month ago against only 16 per cent who said they were charging less.

More figures released yesterday revealed an increase in new business in the service sector for the first time in four months as the recovery from the effects of war in Iraq continues.

The latest Chartered Institute of Purchasing and Supply (CIPS) survey of the private sector services economy showed an overall improvement in activity for the second month in a row and the first sign of growth in new business since January.

The key CIPS business activity index rose to 51.9 in May from 50.7 in April as the sector continued to recover from a dip in March when the build-up to war reached its peak. The March business activity index fell to 49, with 50 representing no change.

The incoming new business index - which charts the level of new orders - reached 52.7 in May, taking it above the crucial 50 mark for the first time since January.

Thursday June 5, 2003