Rate rise on the cards as sales increase

Surging sales of furniture and other household goods and a jump in home shopping boosted retail sales last month, as shoppers took August's interest rate increase in their stride.

That reinforced expectations that the Bank will put rates up to 5 per cent soon to quell inflationary pressures, especially as there were signs yesterday that retailers are feeling less compelled to slash prices, ending four-and-a-half years of heavy discounting on the high street.

The Office for National Statistics said retail sales volumes rose 0.3 per cent in August, taking the annual growth rate to 4.3 per cent. July's 0.3 per cent drop was revised away to show no change on the month.

Jaspreet Sehmi, at the Centre for Economics and Business Research, said: "Evidence of robust retail sales will provide the Bank of England with further ammunition to press ahead with the expected hike in interest rates in November."

August's figures were lifted by a 3.3 per cent rise in the sales of household goods, testifying to the recent revival in the housing market.

Sales also received a boost from the earlier-than-usual release of autumn/winter mail order catalogues, which pushed up mail order and internet shopping by 6.3 per cent - the biggest monthly rise in nearly four years. The news came as John Lewis Partnership unveiled a 70 per cent surge in Web sales.

Strong household goods and mail order sales offset a 1.7 per cent fall in food sales. They returned to more normal levels after a surge during the heatwave and World Cup. Clothing sales rose 0.2 per cent after a strong July as summer sales ended.

Retail sales from June to August grew 1.5 per cent, down from 1.9 per cent in the three months to July, but the ONS said that underlying growth remained "robust" compared with the average in recent years. The figures also showed the smallest level of discounting among retailers since the start of 2002.

However, analysts said that confidence among consumers fell in August and warned that consumer spending could slow in the coming months as interest rates rise further.