High street surge makes rate rise likely

The fourth increase in the cost of borrowing in as many months looked increasingly on the cards after new figures yesterday showed the biggest surge in high street spending since the late-1980s boom.

The prospect of a further increase in interest rates by the Bank of England drove the pound to its highest level for more than eight years, to the dismay of exporters. Its index against a range of other currencies leapt a full point to 106.7.

The Chancellor of the Exchequer came in for renewed criticism from City experts for having failed to crack down on windfall spending in the Budget, putting all the burden of cooling the economy on interest rates. "The Bank's policy dilemma intensifies by the hour," said Kevin Darlington at Hoare Govett."

But Eddie George, Governor of the Bank of England, backed the Chancellor. Speaking to MPs on the Treasury Select Committee, he denied that Gordon Brown's unwillingness to target the consumer in the Budget was the main reason for the recent rise of sterling. Rather, he said fears about European Monetary Union were the main cause.

"If you actually look at the timing of the upsurges ... against the core European currencies, they are mostly associated with developments on the Continent of Europe which are feeding this perception that the EMU process is now being driven by politics rather than on the basis of sound economics," he said.

The Prime Minister blamed the last Government for the dilemma. "Interest rates have had to go up because the previous Government failed to take the action necessary," Mr Blair said.

Despite the interest rate fears, the stock market made gains as share prices in the US surged for a second day. The FTSE 100 index was showing a bit of "irrational exuberance," Mr George said. It ended nearly 28 points higher at 4,874.5 after Wall Street had breached the 8,100 barrier in early trading yesterday.

Official figures showed that the volume of retail sales jumped 0.6 per cent last month even though it was the wettest June for a century. This would normally have depressed sales, but with consumers receiving pounds 20bn of free building society shares during the month, the Office for National Statistics said the windfall gains had contributed to a leap in purchases of household goods.

This rose by 7.5 per cent in volume terms, and stood 21 per cent higher than a year earlier. The increase in the past three months was, at 6.2 per cent, the highest recorded since the figures start in 1986.

The ONS suggested that the windfalls had added an extra pounds 150m to sales of household goods in June. This excludes spending on items like cars and holidays, which are recorded separately.

Sally Collinson of the Oxford Street Association, which represents local retailers and hotels, said sales had boomed, with windfall-related spending offsetting lower spending by tourists constrained by the strong pound. Spending had been strongest in areas such as carpets and curtains. "We think it's the windfall factor," she said.

Comet, the electrical retailer, yesterday backed up recent comments from Dixons when it said sales of televisions, hi-fis and PCs had risen significantly since the Halifax flotation at the beginning of June.

A drop in food sales kept the overall annual increase at 5.4 per cent. Even so, underlying growth in high street sales volumes was the highest since late 1988.

There were signs in the quarterly survey by the British Chambers of Commerce that the strength of the domestic economy is outweighing weaker export orders. Both manufacturers and service businesses reported increased domestic sales in the latest quarter, and both were creating new jobs.

"Consumer spending is building momentum. Once it picks up, it takes a lot to slow it down," said Kevin Gardiner, UK economist at Morgan Stanley.

Some economists drew comfort from the fact that the value of retail sales is growing slightly faster than the volume. But even optimists conceded an increase in rates from 6.75 per cent to 7 per cent was likely, with most predicting the move after the 6-7 August meeting of the Bank's Monetary Policy Committee.

Comment, page 21

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Books should be for everyone, says Els, 8. Publisher Scholastic now agrees
booksAn eight-year-old saw a pirate book was ‘for boys’ and took on the publishers
Life and Style
Mary Beard received abuse after speaking positively on 'Question Time' about immigrant workers: 'When people say ridiculous, untrue and hurtful things, then I think you should call them out'
Life and Style
Most mail-order brides are thought to come from Thailand, the Philippines and Romania
Life and Style
Margaret Thatcher, with her director of publicity Sir Gordon Reece, who helped her and the Tory Party to victory in 1979
voicesThe subject is being celebrated by the V&A museum, triggering some happy memories for former PR man DJ Taylor
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Day In a Page

General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions