British retail sales soared at their fastest pace in 18 months in June to cast doubt on the need for the Bank of England to cut interest rates aggressively.
The Office for National Statistics (ONS) said today that sales rose 1.3 per cent on the month. That was the fastest growth since December 2003 and more than six times the rate predicted by analysts, taking the annual rate of sales growth up to 1.6 per cent from 1.2 per cent in May.
The FTSE-100 index of leading shares rose and the pound gained half a cent against the dollar while short sterling futures fell sharply as dealers reassessed their expectations of how low interest rates would go.
Economists said an interest rate cut from 4.75 per cent in August - the first in two years - was still likely, but the data suggest that demand is not as weak as many high street retailers have complained.
The ONS said growth was driven by some department stores starting seasonal discounting early and a pick-up in sales of summer fashions and sportswear. The retail sales deflator, however, picked up to -0.6 per cent from -1.0 per cent in May.
The heatwave in the second half of the month may have also pushed up retail sales.
Health and beauty retailer Boots Group said today that good weather in the last month had improved sales although it otherwise expected no signs of improvement in the months to come.
All retail sectors reported an increase in sales in June but household goods sales were still lower than a year ago, perhaps a reflection of the slowdown in the housing market.
The ONS said these were 0.3 per cent lower on the year, the biggest decline since June 1998.