Economic gloom will be spread today by two surveys which show faltering high street sales and a sharp fall in confidence in the housing market.
Retail sales have been credited with propping up the British economy but a report from the British Retail Consortium, an industry body, shows that interest rate rises are hurting the country's shoppers.
The Bank of England has raised rates five times since November last year, including a quarter-point rise last week to take its base rate to 4.75 per cent. The rising interest rate cycle is expected to continue until well into next year, with rates forecast to peak at 5.5 per cent.
The housing industry has already warned that the Bank's Monetary Policy Committee is in danger of overdoing it and now evidence from the retail sector points in the same direction.
Retails sales grew a healthy 2.4 per cent growth in June, boosted by sunny weather and Euro 2004, on the BRC's sales monitor. However, July saw a 1.1 per cent drop. Fashion retailers were hit particularly hard, with many starting summer sales earlier than planned.
Kevin Hawkins, the director-general of the BRC, said: "While retail sales continue to defy the prophets of doom and gloom, the yo-yo effect of sales rising and falling month-to-month demonstrates the fragile nature of the consumer economy."
In the housing market, builders have already said that successive interest rate rises have slowed house price inflation to mid-single digits. However, the latest monthly surveys from Nationwide and Halifax continue to show house price increases running at an annualised rate of 20 per cent.
A survey published today by assertahome.com, a property sales website, shows a marked drop in confidence among househunters.
In July - a month that did not see a rise in interest rates - only 57 per cent of those looking to buy still expected house prices to rise over the next 12 months. Now 35 per cent see prices falling over that period, compared with just 9 per cent in January.
While the south still remains the least optimistic region, pessimism has spread to every part of the county, except Scotland and East Anglia. In the North, 43 per cent of househunters expect prices to fall.
Jim Buckle, the managing director of assertahome, said: "The MPC has been explicitly targeting house prices this year and has already hit the bullseye. The trouble is they haven't realised it yet; interest rates are already squeezing the life out of the housing market.
"The main house price indices, many of which still show buoyant price increases, are well behind the curve and have not yet picked up these dramatic changes in consumer confidence. In terms of the housing market, last Thursday's interest rate rise was unnecessary."Reuse content