Ann Robinson said much of the recent increase in retail sales could be accounted for by consumers "trading up" -- buying better quality goods rather than more of them.

"I want the Bank of England and the Treasury to look at this -- I think it explains a lot of why people seem to be spending more, but why that's not inflationary," she told Reuters.

Robinson's comments coincided with the BRC's latest quarterly economic monitor, which said retail inflation in July was 1.3 per cent, exactly half the underlying rate for the economy as a whole.

The survey said retail sales had risen in value by some seven per cent in the last two years, yet prices in the sector rose by only 2.8 per cent -- trading up likely accounting for a significant part of the difference.

Robinson said while the retail sector was still in healthy shape, there had been a slowdown. She said it was important to keep an eye on when that slowdown turns into recession.

"If the Bank of England is not responsive to changes in the economy and doesn't reduce interest rates, we might find we lose volume," she said.

"That in turn will impact on manufacturing and right now the last thing they want is a squeeze on the domestic market."

The Bank of England's Monetary Policy Committee has repeatedly said it is concerned about the pace of consumer spending, saying it must slow if domestic inflation is to be brought under control.

Figures released by the ONS on Thursday showed UK consumer spending has eased -- to 3.8 per cent year-on-year in the second quarter from 5.1 per cent in the first.

The question for the MPC when it meets next month, is whether that slowdown is enough to allow underlying inflation to fall to its target 2.5 per cent rate in the near future.

The BRC's quarterly report also said skills shortages in the retail sector were holding back job creation in areas such as computing, pharmacy, bakery and butchery, particularly in London. The BRC's retail employment index -- out some three months before the official data on the sector from the Office for National Statistics -- showed jobs in retailing rose by a relatively modest 0.4 per cent in the second quarter of 1998.

"Taking the retail sector as a whole, this would equate to more than 10,000 new jobs," the report said.

The index covers 36 per cent of all retail employees, estimated at some 2.37 million.

A lack of skills in certain sectors in Britain is one factor contributing to high wage demands -- something the MPC has also singled out as worrying for inflation.

The BRC said clothing and footwear prices were one percent down on July last year, adding negative inflation was also recorded for a number of leisure goods, including televisions, garden products and sports goods.