Mortgage rate hike hinted

New economic figures have increased the likelihood of a interest rate rise.

12:36 02 June 2004

New economic figures have increased the likelihood of a interest rate rise.

UK retail sales rose at their fastest rate in over two years, according to new figures from the CBI.

The CBI predicts that a further rise in interest rates is on the cards, after a survey by the organisation showed that 65 per cent of retailers reported sales up on a year ago in May. Just 14 per cent of retailers said sales were down last month, marking the strongest rise since April 2002.

Any rise in interest rates will see mortgages become more expensive for anyone with a tracker, or discounted, mortgage. Those with fixed rate deals will only escape if the interest rate drops before the period of their fix expires.

The CBI claimed that rising levels of take-home pay, low unemployment and the robust housing market all fuelled high street sales last month.

The Bank of England's Monetary Policy Committee is due to make its monthly decision on interest rates next week and, with the housing market continuing to boom, a further quarter per cent hike is looking increasingly likely.

But despite strong sales, shop owners are cutting jobs at the fastest pace in 12 years. The CBI found that 37 per cent of retailers reduced staff numbers last month, compared with just 21 per cent who had hired new workers.

All retail sectors - except confectionary, tobacco and news - reported an increase in sales in May, compared with the previous year. With consumer spending remaining strong, retailers are predicting a slowdown in the arte of job cuts during June.