Strong UK sales and price outlook suggest rate rise near

Robust UK retail sales figures and record high inflation expectations on Thursday left the door firmly open for at least one more interest rate hike this year even as the housing market showed signs of cooling.
The Bank of England (BoE) is expected to raise rates to 5.75 percent soon, on top of four hikes since August, and some economists expect further increases even though consumer price inflation is starting to fall towards its 2 percent target.
A BoE survey on Thursday showed Britons' expectations of inflation over the coming year holding firm at a series high of 2.7 percent while official data revealed retail sales growth beat expectations in May, rising an annual 3.9 percent.
"The Bank is running out of excuses for dragging its feet - we believe there is a strong case for a hike at the July meeting," said Alan Clarke, an economist at BNP Paribas.
"Inflation expectations were among the key indicators listed by (BoE Governor Mervyn) King in his speech earlier this week. King specifically noted these needed to fall to in line with the inflation target. We doubt that this can be achieved with just one further rate hike."
King said on Monday rates may need to rise if inflation expectations, pricing power and indicators of capacity pressures remain strong. Surveys have shown companies increasingly eager to ramp up prices to repair profit margins hurt in last year's energy spike, while the economy is pressing ahead close to full steam.
However, there is mounting evidence that Britain's buoyant housing market is starting to come off the boil as higher borrowing costs make it harder to move up or get a first foot on the property ladder.
House prices in May rose at the weakest rate in more than a year and rising rates have also slashed confidence in future prices, the Royal Institution of Chartered Surveyors said on Thursday. That tallies with signs of cooling price growth from the Halifax building society and a decline in mortgage approvals - often regarded as an indicator of future house prices.
"If interest rates reach 6 percent later this year as we expect, housing market confidence is likely to be dented further," said Ed Stansfield, a property economist at Capital Economics.
Much-touted inflationary pay rises have also failed to materialise so far, potentially further reducing the need for higher rates. Official data on Wednesday showed average earnings growth in the three months to April unexpectedly slowed to 4.0 percent from 4.4 percent in March and against forecasts for a 4.5 percent rise.
"While one more rate hike is pretty much bedded in, this week's data suggests it is not clear whether we need to see two," said Peter Dixon, an economist at Commerzbank.