Bank of England chief warns of further interest rate hikes if firms raise prices – business live

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Aled Patchett, head of retail and consumer goods at Lloyds Bank, is more upbeat:

A rise in sales for February suggests that consumer confidence is heading in the right direction after a difficult few months. While inflation remains higher than hoped, retailers will be buoyed to see consumers spending on little luxuries and celebrations.

Those in the industry will be hopeful that warmer temperatures and a fall in gas prices will be the spark needed to free up disposable income amongst consumers and leads to a longer period of growth.

Despite a surprise uptick in inflation earlier this week, we still expect levels to wane later in the year. Retailers will be hoping it’s the shot in the arm consumers need to loosen their grip on purse strings.

Ashley Webb, UK economist at Capital Economics, said it’s too soon to conclude February’s rebound in retail sales will be sustained.

At face value, these data further add to the view that the recent resilience in activity is still holding up. But when households’ finances are under pressure, it is possible that any improvement in retail sales will be just be met by a softening in non-retail spending (such as restaurants).

And although the worst of the falls in real household incomes are in the past, the full drag on activity from higher interest rates has yet to be felt. As such, the coming months may still be a struggle for retailers as the economy tips into recession.

UK retail sales stronger than expected, lifted by discount stores

Retail sales in the UK were much stronger than expected last month, as people turned to discount stores and cut back on eating out and takeaways because of cost-of-living pressures.

Retail sales volumes increased by 1.2% in February from the month before, compared with January’s 0.9% rise (revised higher from 0.5%) and analyst expectations of a 0.2% gain. It was the biggest monthly rise since October. The figures were released by the Office for National Statistics.

However, sales were down 0.3% in the three months to February when compared with the previous three months.

The ONS director of economic statistics, Darren Morgan, said:

Retail grew sharply in February with sales returning to their pre-pandemic level.

However, the broader picture remains more subdued, with retail sales showing little real growth, particularly over the last eighteen months with price rises hitting consumer spending power.

Introduction: Bank of England chief warns of further rate hikes if firms raise prices

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Andrew Bailey, the governor of the Bank of England, has appealed to businesses to avoid price rises but expressed confidence that the rises in the cost of living would slow sharply in the early summer.

Speaking on BBC radio 4’s Today programme, he admitted that inflation had not yet eased, after it unexpectedly rose to 10.4% in February.

Companies should set prices in a way that do not embed inflation at current levels because it could hurt people and would mean higher interest rates, he said.

If all prices try to beat inflation then we will get domestic inflation that will start repeating itself. Higher inflation really benefits nobody and particularly hurts the least well-off in society.

Rising inflation hits the least well-off hardest because they spend a bigger proportion of their income on food and energy.

Bailey said he hasn’t seen evidence of profiteering by companies, but other policymakers are worried that after the pandemic and Brexit, businesses face less European competition, which makes the UK more inflation-prone.

Last year, Bailey called on workers not to ask for big pay rises, sparking a backlash from unions. As wage growth has been under control, he’s now asking firms to stop raising prices further.

His comments came as government figures released on Thursday showed that the average council tax in the UK will exceed £2,000 for the first time next month.

As local authorities struggle under growing financial pressures, it emerged that the average bill for band D properties will go up by £99 to £2,065 for 2023-24.

In towns and cities areas outside London bills rise by 5.1% to an average of £2,059, while rural parts of the country will see an increase of 5% to just below £2,140.

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