Retail sales boom sparks new rate fear

Fears that the economy is overheating will intensify tomorrow when new figures are expected to show that UK shoppers powered the retail sector to its best Christmas sales figures for a decade.

The British Retail Consortium will reveal that like for like sales in the five weeks to 29 December were up between 6 and 7 per cent, double last year's 3.4 per cent.

But strong consumer spending and spiralling personal debt are unlikely to sway the Bank of England's Monetary Policy Committee into raising interest rates this week. At Thursday's meeting it is expected to leave the base rate on hold at 4 per cent.

But the Bank of England's Governor, Sir Edward George, last week warned that the committee will act to raise rates if the spending boom fails to subside.

A welter of retail trading statements this week will confirm that the British public spent billions of Christmas pounds on DVDs, computer games and clothes.

The sparkling performer is tipped to be Electronics Boutique, the computer games retailer, which will post its half-year results on Tuesday. Analysts have pencilled in a 'stunning' like for like improvement of more than 30 per cent.

The clothing and homeware store Next is expected to outperform the overall BRC December figure, with Christmas trading almost 10 per cent up, according to sources close to the company.

House of Fraser is thought to have grown by about 3 per cent in the six months up to Christmas, but Selfridges is expected to show flat growth, with its Oxford Street store lagging behind its booming Manchester shop.

The biggest disappointment is tipped to be the Dixons Group, which has seen slow growth in PCs and mobile phones. Its mobile phone store, The Link, could see a drop in sales of more than 20 per cent, say analysts at SG. Consensus pre-tax profits estimates are about £85 million.

All eyes will be on Marks & Spencer's trading figures when they are released on 16 January. These are expected to confirm the store's dramatic turnaround with a 4 per cent increase in sales. The City is expected to mark up M&S shares because buoyant Christmas trading was not factored into most investors' projections.

But most analysts fear retailers will be in for a tougher time this year if the figures for unemployment increase and the froth comes off the housing market.

Signet, owner of jewellers Ernest Jones and H Samuel will also post results this week. Its UK operations are tipped to show strong growth after Goldsmiths, the privately owned jeweller, said like-for-like sales rose by 9.5 per cent in the four weeks leading up to Christmas. Analysts believe Signet's US operations may have fared better than previously expected.