High street boom renews rate fears
Thursday 21 August 1997
According to the Office of National Statistics, retail sales growth hit 6.5 per cent last month, up from 5.6 per cent in June and higher than expectations in the City of around 5.9 per cent.
The surge in spending was driven by building society windfalls, which sent sales of household goods to a record high, but there was evidence that the conversion boom peaked in June and was falling away quite rapidly.
Sales of household goods, which include big ticket items such as domestic and electrical appliances, rose 7.4 per cent in the three months to July, compared to the previous quarter, the highest growth since 1986. On an annualised basis, sales were 15.8 per cent higher, indicating the extent to which windfalls have found their way onto the high street.
But Geoffrey Robinson, the Paymaster General, played down fears that inflationary pressures were building in the economy. He said strong retail sales were no surprise and competition on the high street was keeping prices down.
He added: "It was entirely expected. We know there is a lot of windfall money being paid out...so we budgeted for this and the market was also expecting it."
People were also saving some of their windfalls, Mr Robinson continued. "At present, people are having a good time, they're enjoying themselves, they're also saving a lot of it so the situation is that for the moment it's as we expected it and we will review it as the situation develops."
He was speaking after figures from the Building Societies Association showed savers had deposited a record amount of cash into societies.
The association said the influx of pounds 1.858bn was due to carpetbaggers seeking a conversion windfall, combined with investors looking for a good interest rate.
The sales figures came a day after an economist warned that the economy was in danger of repeating the boom-bust cycle of the late 1980s as a European Commission survey showed consumer confidence was back at the record levels of 1987.
Ben Sanderson, of Nottingham Trent University, said: "Consumers are showing uncanny parallels with their behaviour during the Lawson boom."
City economists were divided on whether the figures meant interest rate rises were more likely. David Bloom, at HSBC James Capel, said: "It is impossible to believe the Bank will be comfortable with annual retail sales running at 6.5 per cent, the highest level since July 1988 and the highest in the world at present."
He said this month's lower-than-expected 0.3 per cent rise was not a sign of a slowdown but an indication that the economy was tailing off before enjoying another surge. "If this month's rise is such a soft patch, one quakes in anticipation when sales actually restart their powerful monthly trend."
Simon Briscoe, of Nikko Europe, said this backed up last week's Bank of England warning that there was an "upside risk that larger-than-expected proportion of the payouts will be spent during the year".
Andrew Cates, of UBS, was more sanguine: "The fact that windfall spending seems to have moderated may provide some comfort to the members of the Bank's monetary committee."
But he said the growth in the money supply - which yesterday came in at 11.8 per cent, above City forecasts - was "worryingly high".
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