The spending boom is over

The consumer spending boom is finally over, according to official figures released today - but the silver lining is mortgage rates are unlikely to rise for months.

The new figures show the first back-to-back monthly fall in high street sales for four years. In addition, new mortgage approvals and credit-card spending fell to their lowest for four months in June, suggesting the housing and borrowing booms may be fizzling out.

The news, combined with plunging stock markets and low inflation, will mean the Bank of England is likely to keep interest rates at four per cent - a 38-year low. But it will also raise fears that the economy is in for a bumpy few months.

Retail sales tumbled 0.7 per cent in June - the largest one-month decline since February 2000 - after a 0.5 per cent fall in May. The year-on-year rate of increase is down to 4.6 per cent, the weakest since January last year.

The British Bankers' Association said spending on credit cards was £5.6 billion, 14 per cent less than in May and the lowest since February. Mortgage approvals - loans agreed but not yet made - totalled 204,600 with a value of £13.6 billion, also the lowest since February.

London shares rallied today after astonishing gains on Wall Street last night, though dealers remained cautious. Latest trading showed the FTSE-100 index up 136.7 points to 3913.8.

Most City pundits expect the cost of borrowing to remain at four per cent until at least November and possibly well into next year.

Simon Rubinsohn at stockbrokers Gerrard said: "Some rebound [in retail sales] is likely in July and, thankfully, there is little evidence consumers are throwing in the towel in the wake of turmoil in the equity market. Nevertheless, we expect the underlying trend in sales growth to stabilise at around the current level."

Household goods sales were hardest hit, falling 4.3 per cent during June. Department store sales fell 1.7 per cent. High street prices are being slashed due to fierce competition and today's figures chimed with disappointing statements from Debenhams, Argos and Harvey Nichols. Prices in June were two per cent down on a year earlier - the sharpest annual rate of decline on record.

National Statistics issued a mild warning over the data, saying the Jubilee Bank Holidays and World Cup created uncertainty.

Borrowing through personal loans and overdrafts reached its lowest level for six months at £3.24 billion last month. There were signs the housing market is beginning to cool: as well as reporting a fall in mortgage approvals, the BBA announced mortgage lending rose by £4.1billion in June to £400.7billion - a rise well down on May's £5.2billion record increase.

And a survey by property website hometrack reported house prices in England and Wales up 1.2 per cent during July, lower than June's 1.8 per cent rise and May's 2.6 per cent jump.

In the City, today's revival of the FTSE-100 came after the Dow Jones index of US shares made its second biggest one-day gain in living memory yesterday. This afternoon the Dow Jones Industrial average was up 75.73 to 8267.02.

News of an investigation into accounting practices at media and internet giant AOL Time Warner had little immediate impact in London.

? BT's profits jumped 61percent, from £200million to £322million, in the last three months as it slashed staff levels and borrowings. But sales grew by a slow two per cent, to £4.59billion.