Publishing its sales monitor for May, the British Retail Consortium (BRC) said the figures showed the real trend in consumer spending was still downward.

High street spending 'sustainable'

High street spending grew by 3.7% last month, down from 5.7% in April.

The three-month moving average, regarded as a more reliable indicator of underlying trends, rose marginally to 3% from 2.95% for the quarter to May.

However, the BRC said that was distorted by the effect of Easter falling in April, traditionally a busy time for stores.

Untouched by the Easter effect, May's figure provided the clearest evidence yet that high street spending is continuing in a "steady, sustainable pattern", the BRC said.

BRC economist Pamela Webber said the figures showed there was "no excessive spending in the high street" threatening higher inflation.

'Vicious circle'

And she warned that the Bank could be leading the economy into a potential vicious circle of rate rises based on the need to curb wage inflation, which in turn would produce demands for yet higher wages as mortgage rates rise.

"The worst thing is the uncertainty because after last week, we now do not know what rates will do next and consumers are very cautious," she said.

Ms Webber added that the Bank's "rather academic" view of the economy, had not helped.

"You do wonder if they are living in the same world that retailers have to live in," she said.

But she also suggested the Government was at fault for setting too narrow an inflation target.

"If the parameters had been set at around 2.5% or a bit over, instead of below, this rise may not have been necessary," Ms Webber said.

"We are still hopeful that the soft landing for the economy will happen."

TUC Warns on Pay

And the TUC warned in a new report that the Bank's move could worsen pressures on pay and conditions, and was taking "an irresponsible risk" with the economy. TUC General Secretary John Monks said that "negotiated pay settlements are being set at sensible levels and are not the problem." The TUC argues that average earnings figures give a misleading impression because pay is rising at only 2.6% in the public sector but by 10% in the financial services industry.