British retail sales surged last month at the fastest pace since January to defy expectations for a second straight month and cast doubt on the view the economy is slowing down.
Interest rate futures plunged and the pound rose half a cent against the dollar after the Office for National Statistics (ONS) said today that retail sales leapt 1 per cent in September, five times the rate expected.
The gain was more than the upwardly revised 0.7 per cent gain the month before and brought the annual rate to 6.9 per cent, up from 6.7 per cent in August, and challenged the building view the Bank of England (BoE) may not raise interest rates again.
Indeed, this is the second month in a row that retail sales have greatly exceeded expectations and took financial markets totally off guard for the second month as well.
The BoE held rates steady at 4.75 per cent this month and minutes to that meeting published yesterday showed policy makers were worried that the economy was growing slower than expected and did not discuss putting up borrowing costs.
But there is little sign in the official data that retailers are using the greater demand to push up prices. On the contrary, the retail sales deflator, a measure of prices on the High Street, fell to -1.6 per cent, the lowest since December 2002.
Mobile phone sales and carpet sales were particularly strong, as were sales of sportswear, the ONS said. Its generic "other stores" category of retailing, where mobile phone sales would show up, surged 2.4 per cent on the month, the biggest monthly gain in more than two years.