LONDON (Reuters) - British retail sales growth unexpectedly surged to a two-year high during the first part of this month, industry data showed, potentially giving the Bank of England confidence to raise interest rates as soon as November.
The Confederation of British Industry said on Wednesday that its retail sales balance jumped to +42 in September from a reading of -10 in August, the highest since September 2015 and far above all forecasts in a Reuters poll of economists.
British consumers have been squeezed this year by higher inflation triggered by the plunge in the pound after last year's Brexit vote.
But the Bank of England said earlier this month there were some signs consumer demand might be picking up, though it was too soon to tell if this would offset weak business investment.
Most BoE policymakers have said they expect to back a first rate rise in more than a decade in the coming months if the economy and inflation pressures grow as they expect, and economists think this will come as soon as the BoE's next meeting on Nov. 2.
The CBI survey showed that retailers expect strong sales growth to continue into October, with the highest month-ahead expectations since the start of the year.
However, CBI economist Anna Leach urged caution. "Inflation continues to squeeze household budgets, and with the pressure on incomes set to persist, retailers will continue to face a challenging environment," she said.
The BoE expects inflation to exceed 3 percent in October, and only to fall slowly over the next couple of years. The central bank does expect wage growth to pick up, though so far there is limited evidence of a rise.
British retail sales volumes recorded their biggest monthly gain since April last month, according to official data last week, although year-on-year sales growth remained well below levels seen last year at 2.4 percent.