High street spending may push up interest rates

The Bank of England today came under renewed pressure to rein in rampant consumer spending as retail sales surged in April in the biggest gain in 27 months.

In figures released by the office of national statistics (ONS), the volume of high street sales in April was shown to have soared 1.7% from the previous month, and was 6.9% higher than a year ago. The boom confounded City analysts, who had forecast a 0.4% rise for April.

Describing the figures as "quite incredible", David Page, economist at City stockbroker Investec said that they increased the possibility that interest rates may go up as early as July.

"This shows the strength on the high street and increases the chance of the Bank moving much sooner on interest rates than otherwise thought," Mr Page said.

The closely-watched figures were released one day after the Bank of England's monetary policy committee revealed in its minutes that some members made the case for a pre-emptive strike earlier this month to prick the consumer and house price bubble.

In the end the nine members voted unanimously to keep rates at 4% in order not to jeopardise the weak recovery. Rates have remained unchanged since last November, their lowest in 38 years. But today's figures are certain to strengthen the hands of the more hawkish members on the committee at next month's meeting.

The ONS said that last month's sales growth was the largest since January 2000, when sales volumes surged by 1.9%. Before the millennium, the largest monthly rise was a 2.2% jump in October 1997.

Shoppers spent ?17.1bn in April, 5.3% up on a year ago. Sales of clothing, textiles and footwear were particularly strong, shooting up by 17.1% from a year ago - the highest rise recorded by the ONS since its records began in 1986.

But in comforting news for the Bank, there was an absence of price pressure. The implied sales deflator - a broad measure of high street prices - fell to -0.3% in the year to April, from 0.2% in March.

"The softness of prices is really quite remarkable and it is weak prices which are underpinning volume sales at the moment," said economist Jeremy Hawkins of Bank of America.