City rules out rate rise as spree ends

The City was last night ruling out an early rise in interest rates after new figures showed signs that the consumer boom may be running out of steam. Sales on the nation's high streets in June fell to their weakest level in 18 months, according to the Confederation of British Industry's retail survey.

ith the Bank of England's monetary policy committee due to announce its interest rate decision at midday today, City analysts said the downturn, along with the fragile state of the financial markets, made an increase highly unlikely. This is despite statistics also out yesterday which showed a record rise in mortgage lending. The CBI's retail snapshot showed sales are at their weakest since December 2000, while a separate survey of the services companies which ac count for two-thirds of the economy suggested that sector is coming off the boil.

Companies in the services sector reported weaker activity last month across the board, with new orders, employment and ongoing business all affected, according the Chartered Institute of Purchasing and Supply. The institute's overall activity index is still registering growth but at a sharply slower pace than in May. "It does suggest that the Bank of England isn't going to think about raising interest rates_ until at least August," said George Buckley, economist at Deutsche Bank. Poor weather in the first half of the month and events such as the World Cup and the royal jubilee holiday may have hit spending in June, according to the CBI. "Longer-lasting factors such as slowing earnings growth, stock market falls and pensions uncertainty could be making consumers more cautious," said Alastair Eperon, chairman of the CBI's distributive trade survey panel.

The Bank has kept rates on hold at a 38-year low of 4% since last November, even though the dramatic heating up of the property market is starting to alarm some members of the MPC. Bank figures released yesterday showed another surge in mortgage lending in May. The £6.8bn increase was the highest since the Bank began collecting figures in 1993. In the fourth record-breaking month in a row, 125,000 home loans were approved - a figure only slightly below April's 127,000. "The housing market will continue to send shudders down the MPC's collective spine. They may not act [today] but a move to rein in the housing market cannot be far away," said Geoffrey Dicks, economist at Royal Bank of Scotland.