British retailers enjoyed their best December in three years, official data showed yesterday, but robust sales and rising prices will worry Bank of England policymakers as they try to control inflation.
Retail sales in the UK rose twice as fast as expected last month. Sales volumes jumped 1.1 per cent, the biggest monthly rise in 18 months and the best December reading in three years.
That took the annual rate up to 3.7 per cent. Retailers also raised prices for a fourth consecutive month in December, the longest run of increases since 1999.
"The fourth successive rise in the retail sales deflator will maintain the Bank of England's concern that retailers' pricing power has increased," said Howard Archer, chief economist at Global Insight.
Sterling rose and interest rate futures fell after the figures, which may prompt the bank to raise borrowing costs again, were released. However, reaction was muted since other data this week has pointed in the direction of higher interest rates.The bank shocked markets last week when it raised interest rates for the third time in six months, to 5.25 per cent.
"December's retail sales figures showed that consumers did not let higher interest rates get in the way of a good Christmas," said Vicky Redwood at Capital Economics.
But most economists expect consumers will rein in spending later this year as higher rates and living costs start to bite.
"This may be the storm before the lull since many households will be battening down in the new year," said Geoffrey Dicks at RBS.
- (Reuters)
