Surprise surge in high street sales unlikely to prompt rate rise

High Street spending grew at its fastest rate for more than two years last month, according to an unexpectedly strong set of official retail sales figures published yesterday.

High Street spending grew at its fastest rate for more than two years last month, according to an unexpectedly strong set of official retail sales figures published yesterday.

Heavy sales of goods such as carpets, mobile phones and sportswear underpinned a monthly growth of 1.0 per cent, a number last exceeded in July 2002, the Office for National Statistics said.

However analysts said it was unlikely to prompt a rise in interest rates next month as the growth was driven by the steepest price discounting since Christmas 2002. Their forecasts were reinforced by figures showing that the three-monthly growth rate slowed to a 13-month low of 1.1 per cent - although this due to a fall in July.

Alan Clarke, at BNP Paribas, said: "We find it hard to believe that mass hysteria for purchasing carpets and electrical goods is representative of the underlying trend in consumer spending."

City economists believe only an exceptionally strong first estimate of GDP growth for the third quarter, out this morning, could prevent rates staying on hold for the rest of the year.

Geoffrey Dicks, the chief UK economist at Royal Bank of Scotland, said: "I don't believe [the Bank Governor] Mervyn King sees 4.75 per cent as the neutral rate of interest so at the very margin retail sales could prompt a move in November.But I think that if the GDP number comes in tomorrow at or below trend they are honour-bound not to raise rates."

City forecasters expect GDP growth to slow markedly from the second quarter's 0.9 per cent to 0.5 or even 0.4 per cent. The trend rate is seen as 0.7 per cent. Yesterday's figures showed continued growth across the high street in all sectors other than department stores. The rebound was led by mail-order sales, which rose by 3.2 per cent, and the "other stores" category which posted its strongest growth rate, of 2.4 per cent, for 29 months.

"Rumours of the consumer's demise have been exaggerated," John Butler, an economist at HSBC, said. "This number should remind the markets that the Bank might still have more work to do."

The Bank's Monetary Policy Committee will be faced with a marked divergence from the survey evidence from groups such as the CBI and British Retail Consortium that identified falls in sales with yesterday's figures.

Stephen Lewis, the chief economist at Monument Securities, said retail sales made up only one-third of total household spending. "The MPC takes note of what happens in other spending components, such as motors, where September private car sales were down 6 per cent on the year," he said.