Britain's retailers enjoyed another month of sparkling sales in January, indicating that higher interest rates have yet to dampen consumers' enthusiasm for splashing out.
Fresh from celebrating their best Christmas for three years, retailers saw sales volumes in January surge at the fastest rate for two years, according to a report yesterday from the CBI. Analysts said the upbeat news, which sent the yield on 10-year gilts above 5 per cent for the first time in more than two years, would bolster expectations of another rate rise from the Bank of England within months.
A net 30 per cent of retailers reported higher sales in January than a year earlier, the strongest monthly balance since December 2004 and the highest January reading for three years. The best performing sectors were grocers, footwear and durable household goods such as fridges and washing machines, the latter possibly reflecting the ongoing housing boom.
Sales smashed the expectations of retailers, the vast majority of whom had been braced for a poor showing in the new year sales. The strength is expected to continue into February.
John Longworth, executive director of Asda and chairman of the CBI's distributive trades survey panel, said the strong performance should not mask the fact that there will have been individual winners and losers on the high street, and bumper sales were achieved at the cost of heavy discounting. "While shoppers have an appetite for the high street at the moment, and the prospects for February are promising, we have yet to see the full impact of recent interest rate rises on their resilience," he said.
Analysts said the Bank's Monetary Policy Committee would be concerned its monetary medicine is not yet working. Rates, currently at 5.25 per cent, have been lifted three times since August, the most recent increase coming this month.
Karen Ward, an economist at HSBC, said: "Retail spending was expected to slow due to a combination of rising utility bills, weak wage growth and falling working hours as full-time employment has been contracting. The rate rises were also expected to bite but, for now, this will certainly add to the case of the hawks on the committee."
The National Institute of Economic and Social Research says just one more quarter-point rate rise, to 5.5 per cent, is needed to bring inflation, currently running at 3 per cent, back to its 2 per cent target. In its quarterly forecasts, published today, the think-tank predicts that the economy will expand by 2.75 per cent this year, more or less its trend rate of growth, thanks largely to buoyant consumer spending.
Meanwhile, figures from the Land Registry showed the housing market picked up at the end of last year. The average price of a home rose by 0.7 per cent in December, pushing the year-on-year rate of increase to 7.8 per cent, the fastest since April 2005. London saw the biggest increase, with prices rising by 2 per cent in December.Reuse content