British retail sales slowed more than expected in June and mortgage approvals fell on the year last month, indicating higher interest rates may be starting to bite.
Nevertheless, signs consumers are tightening their belts are unlikely to deter the Bank of England from raising rates further and futures prices in the financial markets indicate rates are likely to hit 6 percent by the end of the year.
A survey from the Confederation of British Industry on Wednesday showed June was the weakest month for retailers since November. Sales of clothes, housing goods and furnishings were particularly hard hit as higher borrowing costs and wet weather kept shoppers off the High Street.
"The figures provide evidence the consumer is beginning to feel some ill effects from the BoE's ongoing tightening campaign - albeit, we would argue, not sufficiently weak to forestall a rise in rates to 6 percent this year," said Richard McGuire at RBC Capital Markets. Minutes of the central bank's June meeting showed four of the nine Monetary Policy Committee members opposed the decision to leave rates unchanged this month at 5.5 percent, a six-year high, arguing demand growth needs to slow to bring inflation back to target.
The bank has raised interest rates four times in less than a year to the highest level among the Group of Seven industrialised economies. How fast and how high interest rates eventually rise will depend to a large extent on how quickly the housing market loses steam.
Bank of England Deputy Governor John Gieve said on Tuesday there were "glimmers of a slowdown" in the property market, even though house prices were still rising fast, particularly in London. However, house price inflation is still running at around 10 percent on most measures.
Comments
Comments are closed for this article.