British retail sales unexpectedly jumped in August to stun financial markets prepared for a drop and indicate the Bank of England (BoE) is likely to raise interest rates again later this year.
The Office for National Statistics said today that retail sales rose 0.6 per cent last month versus expectations of a 0.3 per cent fall and reversing July's revised 0.6 per cent drop. That brought the year-on-year rate up to 6.5 per cent.
Market expectations in recent weeks have been moving toward interest rates peaking at the current 4.75 per cent after softer retail and housing data that suggested the economy is slowing down following five rate rises since November.
Yesterday, BoE Monetary Policy Committee member Mr Stephen Nickell said that rates may not have to rise much further if the weaker trend continued.
But interest rate futures plunged and sterling gained nearly half a cent against the dollar immediately after the August sales figures were released as they strengthened the possibility that the BoE will rates by another quarter point by the year-end.
August figures are always more difficult to interpret because of holidays, but the latest sales data show that the British consumer is still disposed to spend, even after the five interest rate hikes since November.
Still, the quarterly growth rate slipped to 1.4 per cent from 1.8 per cent in the three months to July. That was the lowest since September last year.