Retail sales rocketed in June at their fastest pace in one and a half years, suggesting fears of a consumer spending slowdown may be unfounded, new data reveals.
Figures from the Office for National Statistics (ONS) show sales rose 1.3% between May and June, the highest single month of growth since December 2003 and six times greater than analysts' forecasts.
Overall volume of retail sales in the three months to June was 0.7% higher than in the previous three months, the strongest since November 2004.
ONS said that early summer sales and the heatwave late in the month were largely responsible for the increase.
"An apparent surge of 1.3% in sales volumes last month must be treated with caution, though, as monthly sales data is volatile," said Dominic Walley, managing economist at the Centre for Economics and Business Research (CEBR).
Another concern is that the figures cover the period of up to just before the terrorist bombings in London on 7 July. Economists have predicted a temporary but prolonged slump as a result of the attacks, costing the economy up to £3 billion.
The figures, however, will likely soften calls for the Bank of England to cut the base interest rate from 4.75% at next month's meeting of the Monetary Policy Committee (MPC).
It was revealed this week that four of the nine members voted for a quarter-percent cut in July. Analysts widely expect the MPC to make a cut in August.
"An unexpected spring in the step of retail will no doubt make the MPC more cautious about cutting rates at its next meeting, although rates are still likely to be cut in August," Walley said.
Philip Shaw of Investec agreed that the Bank is still likely to cut interest rates, stating that June's numbers seem to represent a 'catch-up' during Q2.
"A number of [MPC] members may well prove hesitant to offer consumer activity additional stimulus following a number of this magnitude," he said.
"Even so, it is important here to look at the bigger picture, and the latest GDP revisions show that the economy has run below trend for three consecutive quarters, while tomorrow's figures for Q2 are likely to make it four."
