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British retail sales surged unexpectedly in May, rising at the fastest rate in two decades as shoppers ignored the gloomy economic climate and rushed to the high street.
The surprisingly strong retail figures shocked economists, bolstering fears that the UK interest rate will rise shortly from 5 per cent. The Bank of England is battling to keep inflation under control after it rose to 3.3 per cent in May.
The pound jumped by a cent against the dollar as markets priced in a rate rise in the next few months.
Record sales of food and clothing, possibly helped by the recent warm weather compared to last year's downpours, pushed retail sales up by 3.5 per cent last month - the fastest pace of growth since the series began in 1986.
Analysts had expected today figures from the Office for National Statistics to show 0.1 per cent decline.
Sales volume in predominantly food stores increased by 3.3 per cent, the largest rise in the series, while sales volume for predominantly non-food stores rose by 3.9 per cent, the largest increase since March 1991.
Howard Archer, chief UK and European economist at Global Insight, said the figures were "absolutely astounding," while Philip Shaw, chief economist at Investec, said he was "staggered".
Geoff Dicks, economist at RBS, said consumers were still willing to pay full prices for goods, as prices rose by 0.6 per cent in May.
"The odds of a rate hike in the next month or two just got a lot shorter," he said.
However, some questioned the official sales figures which deviate from evidence offered by major retailers, such as Sainsbury’s and Woolworths, which have complained about challenging conditions.
The chances of a rate rise were further augmented after Mervyn King, Governor of the Bank of England, indicated last night that the Bank's Monetary Policy Committee (MPC) would take any action it needed to control inflation, which is set to rise to more than 4 per cent before the end of the year, well above the Bank's 2 per cent target.
Speaking at Mansion House in the City, he said: "There should be no doubt that the MPC is prepared to take whatever action is needed to return inflation to the 2 per cent target and to keep expectations of inflation in the medium term anchored to the target."
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Lies damn lies and statistics, Oh ! and just a hint of inflation.
Victor M, Cricklewood,
A dead cat bounce and nothing more.
Salaries are not up, employment is not up, credit levels have barely budged, inflation is high and interest levels are increasing.
We have a single statistical aberration.
I await next May's figures and their accompanying predictions of doom and gloom.
Frank Long, Faringdon,
Oh and the other thing, its all on credit and when people stop paying the credit card bills, as they soon will, look out below. Mortgage default? You aint seen nothing yet.
Jon, Bath,
Of course we are spending more because prices keep going up! What does the BoE expect when it has devalued Sterling?
Paul, Coventry,
It doesn't matter how "though" the times are, we still have to live and people don't care about inflation, they have learned to pay with plastic and there is nothing in the world that will make them stop. Rob, you are right, if we can't by a house we might as well spend the money.
Fabio C, London, UK
This increase in retail sales is all because of inflation, and we still need to eat the same amount and use the same amount of goods. It is one figure that the goverment cannot yet fiddle, and highlights that the real rate of inflation is much higher than the manipulated CPI figures.
George, London,
I suppose it makes sense, where are not moving (houses) so we spend money shopping instead.
Rob, Brum, UK
When something looks too good to be true, it generally is.
Richard, London,
I also find the figures amazing. However, I have noticed recently there appears to be a lot more people buying than just looking. May be it is all the bad news we are getting. Some people cheer themselves up by spending.
Better to keep something for a rainy day, or perhaps a thunder
storm
Barbara, Hereford,
Im all spent out now. The City can relax next month.
ronnie, bucks, uk
I find this really hard to believe, unless it's inflation causing the increase. People certainly aren't borrowing more and their pay isn't going up faster than inflation.
Dr Robert Laundon, London, UK
I dont know why people think that interest rates are high at the moment, they are not high enought. In 1978/9 I was receiving 12.5% interest from the ORDINARY National Savings Investment Account. It is those sort of interest rates which make people save money and not spend it.
Jim Allan, Wigan, Lancs
May 2008 had the benefit of five Fridays and Saturdays (April 08 only had 4 of each) whereas May 07 only had 4. Consumer expenditure has become much more skewed towards the weekend (and remember we are two days out of sink from last year due to the leap year) !! - so agreed - too good to be true
Richard, Sheffield, England
Simple really/ Lots of clothes shops had 'one day only' sales in busy centres with massive discounts. It's unusual to see sales in May.
Phil Green, Monte Carlo,
These figures have to be wrong and, as the old adage goes, you can't rely on one month's figures.
A.Williams, Cradley Heath,
Same stuff in the trolley as last year, but somehow seemed to spend 10% more. I think it's called inflation. Are we buying more or spending more for the same amount of goods, or even spending 8.1%more and getting fewer goods?
Ken, Derby, England
Can't speak for anybody else but I'm busy spending my small savings pot before Gordon Brown and inflation further erode it.
Ian Skelly, Hemel Hempstead,