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Thursday, 17 February, 2000, 10:46 GMT
Huge surge in retail sales
retail sales graph
Retail sales in Britain surged in January, rising 1.5% from December and an unexpected 6.1% compared with a year earlier.

Retail analysts had forecast much more moderate growth.


Retailers will have a tough time putting prices up

Neil Parker
Royal Bank of Scotland
With consumer demand obviously so strong, the Bank of England's Monetary Policy Committee (MPC) could interpret the figures as reason to raise interest rates again soon.

The Bank has increased its base rate - which sets the trend for interest rates across the economy - four times in the past six months. It now stands at 6%.

The Office for National Statistics said the underlying rate of sales growth was 5.3% compared with a year earlier - the strongest figure since February 1998.

It said it was too early to tell whether the hefty January rise was a "one-off" caused by extra shopping during the extended millennium break or a strong pick-up in the underlying growth trend.

Big discounts

While the sales data were buoyed by shoppers coming out in force in the traditional January sale period, it is unclear whether the higher spending was inflationary.

The ONS said its measure of what is happening to shop prices showed a fall of 1.7%, the biggest drop since records began in 1986.

This suggests that shops were able to shift such large volumes last month by heavy discounting, something that will not escape the attention of the "doves" on the MPC.

They will argue that the full effects of recent rises in interest rates have not yet been seen and that it would be best to wait for more data before imposing another increase.

In the breakdown of the data, sales of household goods jumped 7.3% on the month, suggesting the strength of the housing market is feeding through into demand for furniture and other household goods.

Food stores, by contrast, suffered a 1.2% fall in sales. This is thought to be because many people stocked up on food ahead of the Christmas and New Year break.

Mixed picture

Neil Parker, senior economist at the Royal Bank of Scotland, said the figures showed consumers remained price conscious and very definitely in control.

He said: "Retailers will have a tough time putting prices up."

Patrick Foley, chief economist at Lloyds TSB, said the figures painted a mixed picture for interest rates: "On the one hand the higher volume of sales points to demand picking up, which is bad news for interest rates.

"But on the other hand the figures suggest competition over prices is keeping inflation subdued. The Bank of England's Monetary Policy Committee will be looking at both sides of the coin."

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See also:

06 Jan 00 |  Business
Strong retail sales in December
05 Jan 00 |  Business
Next brushes off gloom
23 Dec 99 |  Business
No Christmas cheer for retailers
16 Dec 99 |  Business
UK retail sales pick up
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