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.

PROMOTED VIDEO
Life and Style
techCould new invention save millions in healthcare bills?
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Voices
A meteor streaks across the sky during the Perseid Meteor Shower at a wind farm near Bogdanci, south of Skopje, Macedonia, in the early hours of 13 August
voicesHagel and Dempsey were pure Hollywood. They only needed Tom Cruise, says Robert Fisk
News
peopleEnglishman managed quintessential Hollywood restaurant Chasen's
Life and Style
food + drinkHarrods launches gourmet food qualification for staff
Arts and Entertainment
Michael Flatley prepares to bid farewell to the West End stage
danceMichael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
Horst P Horst mid-fashion shoot in New York, 1949
fashionFar-reaching retrospective to celebrate Horst P Horst's six decades of creativity
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
i100
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Arts and Entertainment
Jamie T plays live in 2007 before going on hiatus from 2010
arts + entsSinger-songwriter will perform on the Festival Republic Stage
Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
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

C#.NET Server Side Developer (C#, XML, WCF, Unit Testing,SQL)

£30000 - £40000 per annum + benefits+bonus+package: Harrington Starr: C#.NET ...

Junior Database developer (SQL, T-SQL, Excel, SSRS)

£20000 - £30000 per annum + benefits+bonus+package: Harrington Starr: Junior D...

Business Analyst - Banking - London - £550 - £650

£550 - £650 per day: Orgtel: Business Analyst - Traded Credit Risk - Investmen...

Data Centre Engineer - Linux, Redhat, Solaris, SAN, Puppet

£55000 per annum: Harrington Starr: A financial software vendor at the forefro...

Day In a Page

All this talk of an ‘apocalyptic’ threat is simply childish

Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
Mafia Dons: is the Camorra in control of the Granite City?

Mafia Dons: is the Camorra in control of the Granite City?

So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Once the poor relation, the awards show now has the top stars and boasts the best drama
What happens to African migrants once they land in Italy during the summer?

What happens to migrants once they land in Italy?

Memphis Barker follows their trail through southern Europe
French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
Frank Mugisha: Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked

Frank Mugisha: 'Coming out was a gradual process '

Uganda's most outspoken gay rights activist on changing people's attitudes, coming out, and the threat of being attacked
Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

Radio 1’s new top ten

The ‘vloggers’ signed up to find twentysomething audience
David Abraham: Big ideas for the small screen

David Abraham: Big ideas for the small screen

A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
Florence Knight's perfect picnic: Make the most of summer's last Bank Holiday weekend

Florence Knight's perfect picnic

Polpetto's head chef shares her favourite recipes from Iced Earl Grey tea to baked peaches, mascarpone & brown sugar meringues...
Horst P Horst: The fashion photography genius who inspired Madonna comes to the V&A

Horst P Horst comes to the V&A

The London's museum has delved into its archives to stage a far-reaching retrospective celebrating the photographer's six decades of creativity
Mark Hix recipes: Try our chef's summery soups for a real seasonal refresher

Mark Hix's summery soups

Soup isn’t just about comforting broths and steaming hot bowls...
Tim Sherwood column: 'It started as a three-horse race but turned into the Grand National'

Tim Sherwood column

I would have taken the Crystal Palace job if I’d been offered it soon after my interview... but the whole process dragged on so I had to pull out
Eden Hazard: Young, gifted... not yet perfect

Eden Hazard: Young, gifted... not yet perfect

Eden Hazard admits he is still below the level of Ronaldo and Messi but, after a breakthrough season, is ready to thrill Chelsea’s fans
Tim Howard: I’m an old dog. I don’t get too excited

Tim Howard: I’m an old dog. I don’t get too excited

The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

Tom Peck on Match of the Day at 50

The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition