Retail sales and housing rebound trigger talk of interest rate rise

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The Independent Online

World Cup fever and aspiring handymen provided the biggest fillip for retail sales so far this year in April, according to government figures yesterday that bolstered the growing case for an interest rate rise.

The volume of sales passing through high street tills last month rose 3 per cent on the same month in 2005. Against March, it rose 0.6 per cent, which was better than expected.

Strong sales of flat-screen televisions and improving sales of do-it-yourself products lifted the household goods sector, the Office for National Statistics said. Sales of household goods were 3.3 per cent up on the previous month and 7.9 per cent higher than a year ago.

The improvement follows signs that life has returned to the housing market, with some recent surveys pointing to a new house price bubble. John Butler, at HSBC, said: "Although the trend is still weak, this set of numbers provide the first sign that retail sales are rebounding and that the strength in the housing market is helping to boost the sale of certain related items."

DIY executives have been studying the signals from the housing market for months, hopeful that a rise in the number of mortgage applications would help to lift their market from a 10-year low. Shares in Kingfisher rebounded 4.25p to 230.75p on hopes that its first-quarter trading statement next week would show the first signs of a turnaround in more than two years.

Most economists expect the boost from football-related sales, from televisions to beer, to be short-lived, suggesting any mini-boom will reflect shoppers bringing their sales forward rather than any major change in consumer sentiment. At Currys, the electricals chain owned by DSG International, a plasma-screen television is snapped up every 15 seconds. Paul Clarke, at Barclays, said retailers could even suffer if England play too many games on Saturdays. England's first match against Paraguay is on 10 June - a Saturday.

Once again retailers had to cut prices in April to attract shoppers. Prices fell by 1.2 per cent compared with the same month a year ago. All sectors saw an improvement in sales except food stores and non-store retailing, which represents department stores, the ONS said.

The stronger-than-expected out-turn for April fuelled speculation that the Bank of England's Monetary Policy Committee will lift rates. Especially since last month's meeting minutes showed there had been the first vote in favour of a quarter-point increase since May last year and the Bank's latest forecasts showed inflation would overshoot its 2 per cent target over the next three years if rates were left unchanged.

Yesterday David Walton, the MPC member who voted for a rise, set out his reasons for doing so in a speech. He said inflationary pressures were building and argued business surveys suggest the economy is growing faster than its trend rate, with exports and investment improving. Even consumer spending could pick up as confidence improves after the upturn in the housing market.

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