British retail sales surged last month at the fastest pace since January, defying expectations for a second straight month and casting doubt on the view that the economy is slowing down.
Interest rate futures plunged and the pound rose half a cent against the dollar after the Office for National Statistics said on Thursday that retail sales leapt 1.0 percent in September, five times the rate expected.
The gain was more than the upwardly-revised 0.7 percent gain the month before and brought the annual rate to 6.9 percent, up from 6.7 percent in August and challenged the building view the Bank of England may not raise interest rates again.
Indeed, this is the second month in a row that retail sales have greatly exceeded expectations and took financial markets totally off guard for the second month as well.
"There is clearly some life left in the consumer," said Philip Shaw, chief economist at Investec.
"We can't believe that the BoE is going to raise interest rates again this year given the signs of weakness in the global economy and the housing market. But we continue to suspect there may be one more tightening early next year."
The BoE held rates steady at 4.75 percent this month and minutes to that meeting published on Wednesday showed policymakers were worried that the economy was growing slower than expected and did not discuss putting up borrowing costs.
But there is little sign in the official data that retailers are using the greater demand to push up prices.
On the contrary, the retail sales deflator, a measure of prices on the High Street, fell to -1.6 percent, the lowest since December 2002.
Mobile phone sales and carpet sales were particularly strong, as were sales of sportswear, the ONS said.
Its generic "other stores" category of retailing, where mobile phone sales would show up, surged 2.4 percent on the month, the biggest monthly gain in more than two years.