Retail sales up, but analysts wary of chancellor's proposed tax increases

Retail sales rose more than expected last month with clothing and footwear the big drivers, but economists warn that any tax rises in new chancellor George Osborne's June budget could snuff out the consumer recovery. The Office for National Statistics said sales volumes rose 0.3% in April from March, slightly ahead of the 0.2% forecast in a Reuters poll of economists. Sales were up 1.8% on the year, as expected. Within that, the largest rise was in textile, clothing and footwear stores which grew sales by 9.5% on a year earlier, echoing data earlier this week showing womenswear exerted the biggest upward pressure on higher-than-expected inflation in April . The sales rise was the biggest for six months. The news was not so cheerful for food stores, however, with sales there down 1.7% on a year ago, the biggest drop since February 2009. Economists said the uptick in overall sales was unlikely to have much bearing on the Bank of England's thinking on interest rates, which most forecasters expect to stick at a record low of 0.5% for the rest of this year. Experts cautioned that high street activity remains below pre-recession levels. "The overall picture is still one of pretty sluggish spending growth. With debt-laden households being squeezed by falling real wages, and a major fiscal tightening on the way – probably including a further rise in VAT – the outlook for consumers, and hence retailers, remains far from rosy," said Jonathan Loynes at Capital Economics. After a year at an emergency recession-related rate of 15%, VAT went back up to 17.5% in January. The new coalition government is expected to raise it further, though possibly not until next year, to help shrink down Britain's gaping budget deficit. Many economists see VAT going up to 20% and believe it is one of the easiest taxes to hike. So far the government's talk on sorting out the public finances has largely centred on cuts rather than tax rises. Osborne will set out £6bn of spending cuts on Monday and will hold an emergency budget on 22 June.