Poor shop sales lift hopes of rate cut

The prospect of an early cut in interest rates propelled share prices sharply higher yesterday as official retail sales figures suggested reports of a boom in high street spending over Christmas were an illusion, writes Robert Chote.

An inflation rate jump to a nine-month high of 1.9 per cent was not seen as a barrier to a cut. It reflected Budget increases in tobacco and petrol duties, and year-old mortgage rates cuts falling out of the annual retail prices comparison.

Retail sales volume fell by 0.2 per cent in December, compared with City forecasts of a 0.5 per cent rise. The Chancellor said too much attention should not be paid to one month's figures, but pressure for a rate cut is likely to be boosted by a 'flattening recovery' warning from the British Chambers of Commerce.