Public perceptions of inflation reached record levels last month and retail sales stayed robust, figures revealed today, leaving the door open for at least one more interest rate increase this summer.

A survey by the Bank showed that the public continues to expect that inflation over the coming year will be 2.7 per cent. On average, people believed that inflation currently stood at 3.1 per cent. Both figures were the highest since the survey began in 1999.

Other hawkish news for interest rates came from the Office for National Statistics, who said that retail sales growth beat expectations in May, rising by 3.9 per cent over the year.

The Bank of England is expected to raise rates to 5.75 per cent soon, on top of four rises since August, and some economists expect further increases even though consumer price inflation is starting to fall towards its 2 per cent target.

“The Bank is running out of excuses for dragging its feet - we believe there is a strong case for a hike at the July meeting,” said Alan Clarke, an economist at BNP Paribas.

“Inflation expectations were among the key indicators listed by (Bank of England Governor Mervyn) King in his speech earlier this week. King specifically noted these needed to fall to in line with the inflation target. We doubt that this can be achieved with just one further rate hike.”

Mr King said on Monday that rates might need to rise if inflation expectations, pricing power and indicators of capacity pressures remained strong.

Surveys have shown companies increasingly eager to ramp up prices to repair profit margins hurt in last year’s energy spike, while the economy is pressing ahead close to full steam.

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