The Treasury yesterday said consumer confidence was buoyant. It rejected a report from MPs on the Treasury committee which had said there were downward risks to the Budget growth forecast. "The latest evidence points to a strong pick-up in the housing market and further strengthening of consumer confidence," the official response said.
The volume of retail sales climbed 1 per cent in May, according to yesterday's figures, and the underlying trend in sales growth continued to improve from the winter low. In the three months to April sales were 1.9 per cent higher than the same period a year earlier.
Clothes and shoes did best during the month, helped by a combination of falling prices and warmer weather. Volumes in this category leapt 2.7 per cent although they were at virtually the same level as a year earlier.
Sales of household goodsrose 1.5 per cent in the three months to May, reaching a level 7.5 per cent higher than a year earlier.
The unexpected strength of the figures sent the financial markets into a dither, reining back hopes that the Monetary Policy Committee could now cut interest rates once again.
Some economists argued a further move would be justified by low inflation. Retail price figures earlier this week showed headline inflation falling to a six-year low and the target measure declining significantly below 2.5 per cent.
Others said it was the strong pound that was helping tame inflation. "Price discounting helps, but the figures are showing there is a strong desire to purchase on the part of consumers," said Neil Parker, an economist at Royal Bank of Scotland.
The pound ended unchanged at 104.8 against a basket of currencies yesterday. Currency markets are contemplating the prospect that if the Bank of England cuts rates while the US Fed raises them, UK and US interest rates might soon be equal for the first time in 15 years. Analysts say this would make a sharp fall in the pound likely.