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
Buttoned up: Ryan Reynolds with Helen Mirren in ‘Woman in Gold’
filmFor every box-office smash in his Hollywood career, there's always been a misconceived let-down. Now he says it's time for a reboot
News
people
News
Actress Julianne Moore wins the Best Actress in a Leading Role Award for 'Still Alice' during the 87th Annual Academy Awards in Hollywood, California
people
Sport
Ross Barkley
footballPaul Scholes says it's time for the Everton playmaker to step up and seize the England No 10 shirt
News
'We will fix it': mice in the 1970s children’s programme Bagpuss
science
Life and Style
2 Karl Lagerfeld and Choupette
fashion
ebooks
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
and  

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

iJobs Job Widget
iJobs Money & Business

SThree: Graduate Recruitment Resourcer

£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

Recruitment Genius: Telesales Executive - OTE £32,000+

£18000 - £32000 per annum: Recruitment Genius: A Telesales Executive is requir...

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Day In a Page

War with Isis: Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria's capital

War with Isis

Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria
Scientists develop mechanical spring-loaded leg brace to improve walking

A spring in your step?

Scientists develop mechanical leg brace to help take a load off
Peter Ackroyd on Alfred Hitchcock: How London shaped the director's art and obsessions

Peter Ackroyd on Alfred Hitchcock

Ackroyd has devoted his literary career to chronicling the capital and its characters. He tells John Walsh why he chose the master of suspense as his latest subject
Ryan Reynolds interview: The actor is branching out with Nazi art-theft drama Woman in Gold

Ryan Reynolds branches out in Woman in Gold

For every box-office smash in Ryan Reynolds' Hollywood career, there's always been a misconceived let-down. It's time for a rethink and a reboot, the actor tells James Mottram
Why Robin Williams safeguarded himself against a morbid trend in advertising

Stars safeguard against morbid advertising

As film-makers and advertisers make increasing posthumous use of celebrities' images, some stars are finding new ways of ensuring that they rest in peace
The UK horticulture industry is facing a skills crisis - but Great Dixter aims to change all that

UK horticulture industry facing skills crisis

Great Dixter manor house in East Sussex is encouraging people to work in the industry by offering three scholarships a year to students, as well as generous placements
Hack Circus aims to turn the rule-abiding approach of TED talks on its head

Hack Circus: Technology, art and learning

Hack Circus aims to turn the rule-abiding approach of TED talks on its head. Rhodri Marsden meets mistress of ceremonies Leila Johnston
Sevenoaks is split over much-delayed decision on controversial grammar school annexe

Sevenoaks split over grammar school annexe

If Weald of Kent Grammar School is given the go-ahead for an annexe in leafy Sevenoaks, it will be the first selective state school to open in 50 years
10 best compact cameras

A look through the lens: 10 best compact cameras

If your smartphone won’t quite cut it, it’s time to invest in a new portable gadget
Paul Scholes column: Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now

Paul Scholes column

Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now
Why Michael Carrick is still proving an enigma for England

Why Carrick is still proving an enigma for England

Manchester United's talented midfielder has played international football for almost 14 years yet, frustratingly, has won only 32 caps, says Sam Wallace
Tracey Neville: The netball coach who is just as busy as her brothers, Gary and Phil

Tracey Neville is just as busy as her brothers, Gary and Phil

The former player on how she is finding time to coach both Manchester Thunder in the Superleague and England in this year's World Cup
General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?