British retail sales surged last month as shoppers rushed to buy summer goods during the hottest June since 1976, increasing speculation that interest rates could now have reached their floor.

The Office for National Statistics said yesterday that sales jumped 1.9 per cent in June, nearly five times the rate predicted by analysts, and were up by 6 per cent on the year.

That was the sharpest monthly increase in 18 months since sales rebounded after being depressed by the September 11th attacks on the US.

Before that, sales growth had not been so strong since the Millennium euphoria of January 2000.

"This should put paid to the assertion made by many commentators and pressure groups that the correction in consumer spending is already under way," said Mr John Butler, UK economist at HSBC.

"If this is the correction, then I'd hate to see the boom."

Gilts and interest rate futures fell as the figures were released while sterling jumped to a one-week high against the dollar and the euro as dealers marked down the prospect of further interest rate cuts in Britain.

July has also been unusually warm so far and analysts are debating whether bumper sales were set to continue, convincing the Bank of England not to repeat this month's cut in interest rates for the time being. - (Reuters)