UK retail sales post biggest gain in two year

British retail sales rose at the fastest annual pace in two years in May as sunny days tempted Britons to head out to garden centres and clothing stores, stirring worries interest rates will have to climb higher soon.
The Office for National Statistics said on Thursday that May sales gained a robust 0.8 percent on the month, marking a full year of no monthly pullback in sales, something which has not happened since comparable records began in 1986.
Economists had expected a 0.6 percent gain. On the year, sales were up 7.4 percent, the fastest rate since April 2002, while the three-month rate, a good measure of the trend in retail sales, was up a strong 1.7 percent compared with the previous three months.
The figures lifted expectations that the Bank of England's Monetary Policy Committee will raise borrowing costs again sooner rather than later, with interest rate futures plunging and the pound adding to earlier gains against the dollar.
"The UK's high-street boom remains in full swing, maintaining the pressure on the MPC to press on with further rate rises," said Richard Iley, an economist at BNP Paribas.
"A move in July, making it three (months) in a row, cannot be ruled out."
The BoE has already boosted rates by one percentage point since November and markets expect at least another half point worth of hikes by the end of the year.
Other figures this week that showed unemployment falling to a three-decade low and take-home pay on the rise may explain why consumers remain so resilient in the face of a central bank now clearly bent on curtailing their borrowing to shop.
BoE Governor Mervyn King this week said it was impossible to predict how high interest rates may have to rise to keep consumer price inflation under wraps.
So far, however, there is little evidence that higher sales volumes are pushing up prices to any significant extent. The retail sales price deflator remained in negative territory, down 1.0 percent, while the overall inflation rate remains some way below the MPC's 2.0 percent target.
But a resurgent housing market since the start of the year that has put house price inflation back to 20 percent year-on- year by some measures has Britons shopping in droves for gardening equipment, plants and outdoor furniture.