High street prices 'rising faster'Food, clothing and footwear see greatest hikes

18 May 2007

High street prices have risen at their fastest annual rate for more than eight years, official figures revealed today.

The Office for National Statistics (ONS) said the cost of retail goods rose by 1 per cent in April on a year ago - its fastest rate of growth since February 1999 - with food, clothing and footwear seeing the highest price hikes.

The price increases appeared to have put consumers off hitting the shops last month, as retailers saw an unexpected 0.1 per cent dip in April sales, according to the ONS data.

But the three-month sales figures paint a more robust picture of the health of the retail sector, with a rise of 1.2 per cent continuing the steady growth seen over the past two quarters.

Global Insight economist Howard Archer said the Bank of England will be paying close attention to the retail sales trend as it mulls over the possibility of raising interest rates for the fifth time since last August.

Interest rates

Rates were raised by a quarter point to 5.5 per cent earlier this month and there are fears another hike could be on the cards to keep inflation under control.

Mr Archer said the 1 per cent leap in annual retail prices would 'reinforce the Bank's concern that retailers have become more confident in their pricing power and are trying to push through more increases to boost margins'.

Inflation figures showed that the overall cost of living in the UK dropped sharply in April thanks to cuts in energy bills, which had given hope that rates may be kept on hold.

However, the Bank revealed in its quarterly inflation report earlier this week that another quarter-point rise may still be needed for inflation to remain subdued, with corporate pricing power a particular risk.

ING economist James Knightley said: 'With the risk that high street prices will offset some of the effects from lower utility bills, the Bank looks set to raise rates possibly in June, but more probably in July.'

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