Sturdy retail sales caps strong week for UK data; rate hike on the cards

A set of sturdy retail sales data capped a strong week for UK economic indicators, putting a November rate hike pretty much on the cards.
Early signs that the Bank of England's unexpected rate hike early August has not dampened retail sales or indeed house prices were greeted as confirmation that borrowing costs are set to increase. But there was some caution too, as the effects of the August rate hike are not expected to be fully felt until a few months on.
The data week got off to a slow start with producer prices easing slightly. Input prices basis fell 1.2 pct in August from the previous month against analysts' expectations of a much smaller 0.4 pct decline. The fall was the fist since May and the largest since December 2004's 2.3 pct.
John Butler, economist at HSBC, said the data provides evidence that inflationary pressures in the earliest part of the supply has "peaked" and is now "starting to ease".
The effects of the data was quickly was offset the next day when the headline annual CPI rate of inflation hit 2.5 pct in August, up from 2.4 pct the previous month.
"With consumer prices rising further above the 2.0 pct target, there are growing pressures for the Bank to raise interest rates in November, despite news of easing producer prices," said Thushani Gajasinghe, economist at the Centre of Economic and Business Research.
On Wednesday, the UK labour report showed falls in the number of Britons making jobless claims although wage gains stayed at muted levels.
"Although the latest benign wage inflation data are welcome, July is not an important month for earnings developments and the real test will come around the turn of the year when 2007 annual pay deals emerge," said Ross Walker, economist at the Royal Bank of Scotland.
News out today, meanwhile, revealed that retail sales held steady in August despite the rate hike and the fading effects of the World Cup the previous month.
The office for National Statistics said sales, on a seasonally-adjusted basis, rose by 0.3 pct in August from the previous month, against expectations of a 0.4 pct rise. Sales for July were revised up to show no change from the previous month against the initial estimate of a 0.3 pct fall.
Daragh Maher at CALYON said that while the August figures were roughly in line with expectations, the upward revision to data for July gave the release a slightly hawkish complexion.
It was also clear from the data that house price gains were having an impact, given the pick up in sales of household items.
Despite this,the outlook for interest rates remains dependent on upcoming data, he added.
Overnight UK data also helped underpin rate hike expectations.
According to a survey from the Royal Institution of Chartered Surveyors home buyers in the UK ignored the unexpected rate hike in August to bid house prices higher by levels not seen since May 2004.