Sales boom may trigger rate rise

THE cost of borrowing looks set to rise again this week after figures showed booming High Street sales.

Warm weather and preparations for Euro 2004 football tournament sent shop sales soaring by 3.7% in May, up from 1.8% the previous month on a like-for-like basis.

Overall sales, taking into account new sales space, were up a remarkable 6.5%, the largest rise since January.

The figures from the British Retail Consortium, following last week's strong credit and mortgage figures, are certain to raise fears that the economy is overheating when the Bank of England's monetary policy committee meets tomorrow.

The BRC said the figures were 'deceptively strong', as many shoppers had delayed making purchases in March and April due to wet and cold weather.

A survey by Reuters showed that a majority of City economists expect the Bank to raise its base rate by a further quarter point to 4.5% when it ends its two-day meeting on Thursday.

It would be the fourth increase since November, making British rates the highest among leading industrial countries.

An important factor in the Bank's thinking is likely to be the 50% rise in crude oil prices this year. The secondary effects of this are now starting to be felt by consumers in the shape of dearer petrol, electricity and gas, all of which feed through to inflation.

At present, inflation is running at just 1.2% - well below the Government's target of 2%. But the Bank believes that with house prices still strong, credit expanding at a fast pace and average earnings on the rise, inflation could exceed the target unless it raises rates now.

The main debate in the City is over whether a quarter point rise will be enough or whether the Bank should go for a full half point increase.