High street sales buck the trend

The Government's gloomy predictions about the economy clearly haven't convinced the Great British shopper...

Last Updated: 06 Nov 2012

After both Alistair Darling and Mervyn King used last night's Mansion House dinner to warn us how bad things are going to be in the coming months, it was a bit of a surprise to wake up this morning to discover that the high street has just enjoyed its best month since records began. According to the Office of National Statistics, UK retail sales climbed by 3.5% in May, the biggest monthly jump in the 22 years the ONS has been doing its sums. As the sun shone on the UK, food sales rose 3.3%, while clothing sales enjoyed a quite remarkable 9.2% jump.

If you're a bit taken aback by this, join the club (for a minute, we thought we were accidentally reading a press release from last year). Admittedly it echoes the recent findings of the British Retail Consortium, which suggested that underlying retail sales were up 1.9% in May. But after a drop in sales in the two previous months, and with constant doom and gloom about the state of the economy all around us, you'd have been forgiven for assuming that we might be reining in our spending. Yet apparently not - clearly it'll take a lot more than a financial market meltdown to cure our shopping addiction...

But although this sounds like good news, it probably isn't. The longer we keep spending like there's no tomorrow, the more likely it becomes that the Bank of England will put up interest rates to try and keep a lid on inflation - which is going to put the squeeze on a lot of people. In fact at Mansion House last night, Mervyn King emphasised that the MPC would ‘take whatever action is needed' to get inflation back down to 2% - and given that interest rates are the only things it can alter, it's pretty obvious what this means (unless Merv and his soon-to-depart deputy Sir John Grieve are going to start digging for oil in the North Sea at the weekends).

On the other hand King also made the (increasingly obvious) point that interest rate changes are a bit of a blunt instrument for managing the economy - it won't bring down the cost of living, and it doesn't seem to persuade banks to lend money more cheaply. In his largely unremarkable speech last night, the Chancellor made some fairly vague promises that the Bank would also have extra new powers to control UK financial stability. But setting up yet another committee to avoid financial instability sounds a bit like shutting the gate after the horse has bolted, if you ask us...

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