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Faster sales ‘herald rate rise’

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14/12/2006

Government figures have shown that UK consumers are still spending big in the retail sector, provoking fears that another rise in interest rates is imminent.

The Office for National Statistics (ONS) said that sales rose a better-than-expected 0.3% from October, down from 1% the month before, and that annual growth now stood at 3.2%.

In the currency markets the UK pound gained against the US dollar and the euro, on the back of the sales data, indicating that professionals in the UK investment sector expect a rate rise sometime early next year.

“It looks like a February rate rise to me at the latest,” said Colin Perry, a City analyst. “We have had two rate rises in the past five months and I would say the economy has the robustness to withstand one more if the Monetary Policy Committee wants to put the lid on inflation.”

The increase in November’s retail sales, reflecting a belief that spending was the best investment, was the third in a row and the longest ‘bull run’ in the figures since nearly eight years ago in early 1999. The ONS also noted that the rise came despite a 0.2% drop in food sales, which account for half of the total figure.

Areas of UK investment and spending that saw particularly strong growth were mail order and Internet retailing, which jointly rose by 2.9% between October and November.

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