However, they predicted the Chancellor would deepen the rift opening up between him and the Bank of England if he does cut rates again soon. Minutes of Kenneth Clarke's May meeting with the Governor, Eddie George, released yesterday, reveal a difference of opinion, even though they agreed not to take any action then. According to the minutes, Mr George argued that: "There was little that monetary policy could do to offset the present, temporary, effect of weak overseas demand on manufacturing industry." Lower rates would simply risk stoking domestic demand with inflationary consequences.
However, Mr Clarke said below-trend growth and the complete absence of inflationary pressures made it worth considering reducing rates. City observers believe he acted against the Governor's advice in cutting a quarter point off base rates earlier this month.
Yesterday's retail sales figures provided further vindication for that move, following encouraging inflation figures last week. "It removes the last question mark over the Chancellor's judgement," Simon Briscoe, UK economist at Nikko Europe, said.
The volume of sales fell by 0.1 per cent in May, bringing their year- on-year growth rate a fraction lower to 2 per cent. It was the coldest May on record, which helped explain a 1.2 per cent drop in sales of clothing and footwear during the month. Economists said the weather probably reduced high street sales growth by 0.5 per cent.
Sales at food stores, which make up more than two-fifths of the total, were weak, too. They were down 0.2 per cent compared with the previous month and were only 0.4 per cent higher than a year earlier.
Sales by non-food retailers as a whole picked up, growing 4 per cent in the year to May against 3.2 per cent in the year to April. Household goods make up the strongest component, with sales volumes up nearly 10 per cent year on year.
"This is further evidence of an injection of demand, especially in the big-ticket area," said Leo Doyle, an economist at investment bank Kleinwort Benson. He predicted clothing sales would bounce back this month.
Anecdotal evidence continues to point to an upturn in spending. The latest figures from the John Lewis group speak of a "remarkable week's trade".