Shopping boom sparks UK interest rate hike warning

Sterling strengthened against the dollar today after an upbeat survey on British retail sales fuelled expectations of more interest rate hikes in the UK.

Sterling strengthened against the dollar today after an upbeat survey on British retail sales fuelled expectations of more interest rate hikes in the UK.

The CBI’s latest distributive trade survey found a balance of plus 44% of retailers reporting higher sales volumes in the first half of April after strong Easter trading – the highest balance since May 2004.

The pound was trading at 2.0045 US dollars after economists predicted another hike in interest rates from the Bank of England’s Monetary Policy Committee in the autumn on top of a widely-expected quarter-point rise to 5.5% next week.

Global Insight’s chief UK economist Howard Archer said: “The robust survey not only cements a quarter-point interest rate hike to 5.5%, but increases pressure for interest rates to rise further thereafter.

“We now expect interest rates to reach 5.75% in the third quarter.”

ING economist James Knightley added: “Clearly, consumers are happy to keep spending. As a result there is little to prevent a May rate rise, with sterling likely to push higher through the day.”

Sales grew strongly among retailers selling household items and DIY hardware, with big increases also reported in sales of food and footwear.

Retailers’ stock levels are also low in relation to expected demand, the survey said.

And firms are confident that consumers will keep spending with a balance of plus 36% predicting that sales volumes will continue to grow, the most positive outlook among retailers since July 2004.

John Longworth, chairman of the distributive trades panel, said the high street performance “surpassed expectations”.

He added: “Retailers expect demand to remain strong as we head into the summer and the recent trend of healthy sales growth looks set to continue.”

Yesterday a survey by market research firm GfK NOP also found consumer confidence at its highest point in six months, as the warm weather and a pleasing Budget lifted sentiment.

HSBC economist Karen Ward added that the Bank of England’s Monetary Policy Committee would be concerned at the upbeat consumer data, despite slowing manufacturing growth also reported today.

She said: “This indicates an environment in which companies will remain confident about their ability to push through price increases and the MPC will be increasingly worried that they will succeed in doing so.

“The fundamentals for consumers may not be strong, but this survey indicates they have no willingness to slow their spending.”

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