Rate rise likely as Euro 2004 fans boost retail sales

Sales of TV sets and football shirts snapped up by Euro 2004 fans helped to push retail sales to unexpected highs in June, official data showed yesterday.

Shoppers shrugged off the Bank of England's four rate rises since November. Retail sales grew by 1.1% during June, the Office for National Statistics said.

The increase was almost four times analysts' estimates of 0.3%. Analysts said an increase in the cost of borrowing next month now seemed very likely.

"If there are any remaining doubts about an August rate hike, this should just about dispel them," David Page, an economist at Investec, said.

Retail sales growth on a monthly basis has now been either positive or flat for 13 months in a row, the longest period without any dips since records began in 1986.

Sports shops saw May's strong sales of football shirts and flags continued into June, and demand for televisions boosted electrical retailers' revenues. Sales might fall in July when the boost from Euro 2004 ends, Vicky Redwood of Capital Economics said.

Sales over the more stable three-month average rose by 6.9% year on year, the highest rate since June 2002.

Minutes from the Bank of England monetary policy committee's July meeting showed that, although the decision to leave rates unchanged at 4.5% had been unanimous, the committee thought "it was likely that the repo rate would need to increase further".

The strength of retail sales and mortgage lending suggests that consumer spending is not slowing yet - which makes a further rate rise in August extremely likely, Richard Iley at BNP Paribas said.

Preliminary estimates for second-quarter GDP growth are expected today and may be even stronger than the 0.9%-1% anticipated, given the continuing high street boom, analysts cautioned.

Clothing sales decreased in June by 0.4% after strong sales growth for the last few months. Economists thought this could be due to Euro 2004 luring customers out of more traditional clothing retailers.

But strong competitive pressure in the retail sector is keeping prices of all goods low, despite the strength of consumer demand. Prices declined by 1% compared with June last year and by 0.5% since last May. Prices have been falling since January 2002.