Surge in retail sales fuels predictions of an early rise in interest rates

 

Growing signs of a split among the Bank of England's interest rate setters, and the biggest retail sales surge since 2004, yesterday fuelled fears of an early move from Threadneedle Street to keep the recovery under control.

The Bank has said that rises in interest rates – currently priced in for February – will be "gradual and limited". But minutes of its May meeting dropped a heavy hint over an earlier potential move to lift borrowing costs from their record low of 0.5 per cent, where they have sat since March 2009.

The record of the Monetary Policy Committee meeting said: "It could be argued that the more gradual the intended rise in Bank rate, the earlier it might be necessary to start tightening policy." Although the vote to hold rates was unanimous, faultlines are emerging on the nine-strong committee as "some members" – likely to include the hawkish Martin Weale and Ian McCafferty – thought the decision was "becoming more balanced". Ross Walker, UK economist at the Royal Bank of Scotland, said: "We had expected some erosion of the consensus but not to this extent."

The minutes emerged as retail sales figures showed sales volumes jumping 1.3 per cent in April to stand 6.9 per cent higher than a year ago, the fastest annual pace since May 2004. Although boosted by a later Easter, the sales were far higher than expected by the City, prompting dealers to raise their bets on a early rate rise.

Food sales jumped 3.6 per cent on the month as major grocers clash in a price-cutting war and, against a backdrop of an economy growing at more than 3 per cent annually, sterling jumped almost a cent against the dollar, reaching as high as $1.6921 and also hit a 16-month peak against the euro.

Following the lapse of the first incarnation of the Bank's forward guidance as unemployment dropped rapidly to 6.9 per cent, the eventual timing of an interest rate rise will be ultimately governed by the MPC's view of the amount of slack left in the economy.

But the hawkish tone of the minutes took markets off-guard following an ultra-dovish performance from the Bank's Governor, Mark Carney, in last week's Inflation Report.

"The pound's spike suggests investors are finding a very different policy outlook based on today's meeting minutes," Nawaz Ali, at Western Union, said. The housing market also remains a concern for the MPC, although actions to cool it are likely to be left to the sister Financial Policy Committee.

David Tinsley, an economist at BNP Paribas, said: "Over the next few meetings we do expect these discussions to evolve further, especially if UK data continues to show the sort of strength seen in today's retail sales report. By the summer, one or more MPC members could be voting for a hike."

The retail figures showed food stores enjoying the fastest year-on-year rise in sales since January 2002 as customers capitalised on the supermarket price war, driving average weekly sales to £3bn, the Office for National Statistics said. Annual price inflation at grocers halved to 0.9 per cent last month from 1.8 per cent in March.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Attenborough with the primates
tvWhy BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
News
Campbell: ‘Sometimes you have to be economical with the truth’
newsFormer spin doctor says MPs should study tactics of leading sports figures like José Mourinho
Sport
football
Life and Style
Agretti is often compared to its relative, samphire, though is closer in taste to spinach
food + drink
News
Kelly Osbourne will play a flight attendant in Sharknado 2
people
News
Down-to-earth: Winstone isn't one for considering his 'legacy'
people
News
The dress can be seen in different colours
i100
Sport
Wes Brown is sent-off
football
Voices
Lance Corporal Joshua Leakey VC
voicesBeware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Life and Style
Alexander McQueen's AW 2009/10 collection during Paris Fashion Week
fashionMeet the collaborators who helped create the late designer’s notorious spectacles
ebooks
ebooksA special investigation by Andy McSmith
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: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003
Barbara Woodward: Britain's first female ambassador to China intends to forge strong links with the growing economic superpower

Our woman in Beijing builds a new relationship

Britain's first female ambassador to China intends to forge strong links with growing economic power
Courage is rare. True humility is even rarer. But the only British soldier to be awarded the Victoria Cross in Afghanistan has both

Courage is rare. True humility is even rarer

Beware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Alexander McQueen: The catwalk was a stage for the designer's astonishing and troubling vision

Alexander McQueen's astonishing vision

Ahead of a major retrospective, Alexander Fury talks to the collaborators who helped create the late designer's notorious spectacle
New BBC series savours half a century of food in Britain, from Vesta curries to nouvelle cuisine

Dinner through the decades

A new BBC series challenged Brandon Robshaw and his family to eat their way from the 1950s to the 1990s
Philippa Perry interview: The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course

Philippa Perry interview

The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course
Bill Granger recipes: Our chef recreates the exoticism of the Indonesian stir-fry

Bill Granger's Indonesian stir-fry recipes

Our chef was inspired by the south-east Asian cuisine he encountered as a teenager
Chelsea vs Tottenham: Harry Kane was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope

Harry Kane interview

The striker was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope
The Last Word: For the good of the game: why on earth don’t we leave Fifa?

Michael Calvin's Last Word

For the good of the game: why on earth don’t we leave Fifa?
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?