A surprise boom in retail spending in May might prompt the Bank of England to raise interest rates earlier than expected.
Figures show sales rose at their fastest monthly rate for over 20 years, up 3.5%, giving annualised sales growth of 8.1%.
However, some analysts fear this growth is unsustainable and may be an indicator of poor future prospects.
Retail sales were expected to fall by 0.1% in May as economic growth is slowed by rising food and fuel costs and higher interest rates.
Mervyn King has already warned that pay deals need to be restrained to avoid an inflationary wage price spiral, and the latest revelation in retail sales may prompt him to act sooner than expected to curb growth.
Andrew Bell, head of research at Rensburg Sheppards, says the figures are either wrong or totally unsustainable.
“The improved weather may have tempted people to buy some less woolly clothes. The other factor may have been increased costs of fuel, which consumers have put on their credit cards and not yet offset by curtailed spending on other things,” he says.
“Either way, sales will hit the ceiling imposed by credit limits and the previous safety valve of second mortgages is now closed. It does not feel like we are in the retail boom that the figures imply, so either the figures are wrong or the future prospects correspondingly poor.”
Bell says investors should remain bearish on domestic consumption despite the high sales figures, as they are likely to be a short-term blip.
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