High St shoppers back in force

SHOPPERS hit Britain's High Streets and retail centres in force last month, with sales rebounding at the fastest rate for more than two years. Reversing the previous two months' shock falls, latest figures showed retail sales volumes leapt by 1.5% in February, the biggest single month increase since January 2000. The year-on-year rate of increase jumped from 4.4% in January to 5.9%.

Economist Jeremy Hawkins, at Bank of America, said: 'A bounce back in retail sales was only to be expected following the suspicious falls in January and December, but February is very strong.' Steven Andrew, at Royal & SunAlliance Investments, said: 'This report certainly removes any doubt that the consumer continues to spend freely.'

Sterling surged almost half a cent to hit a high of $1.4325 as the increase came in much stronger than the 0.5% the City had expected. Gilts and short sterling futures, which track interest rate expectations, fell as traders jacked up their forecasts of higher rates.

The strong High Street performance was driven by sales of clothing and footwear, which rose 3.6%, the biggest one-month increase since last year's January sales, as shoppers snapped up the spring collections. But the recovery was seen right across the board.

The news will be scrutinised by the Bank of England. Governor, Sir Edward George, has warned the cost of borrowing may have to rise if consumer spending growth fails to moderate of its own accord.

But George and his colleagues on the monetary policy committee can take heart that there appears to be little inflationary pressure on the High Street. The so-called implied sales deflator - a measure of High Street inflation - fell to 0.4% in February from 1% in January.

Economist Adam Chester, at Halifax, said: 'A lot of the sales strength is coming because of price discounting. It appears retailers have very little scope to widen margins.' That should enable the Bank to keep interest rates at 4% for the time being, say economists.

The good news on spending was compounded by a more upbeat tone on manufacturing's prospects from the CBI. Its latest poll of firms showed sentiment improving for the second month. Although order books remain weak, output is expected to stabilise in coming months.