Shoppers may force rate rise

THE pound was on the up again today after news of a post- Christmas shopping frenzy sparked speculation that interest rates might have to rise further and faster than previously thought.

Official figures showed that retail sales jumped by 0.6% in January against expectations of a 0.1% increase. That pushed the year-on-year rate of growth to 6.4%, the fastest since December 2002.

The strongest gains were seen for mail-order goods. Clothes shops and shoe shops also did well, with sales rising by 2.3% in the month despite evidence that stores did not discount as much as usual in the January sales.

Most City economists expect the Bank of England to lift interest rates again in May, with the cost of borrowing tipped to end the year at 4.75%. But they said that resilient consumer spending meant the Bank might have to take more drastic action. Sterling responded by leaping half a cent to a high of $1.8938.

That view was reinforced by figures from the British Bankers' Association showing the big High Street banks dished out £5.9bn worth of new mortgage loans in January, the biggest one-month increase since November 2001.

Brian Hilliard, economist at Societe Generale, said: 'Rate increases might need to be more aggressive. The Bank will keep on turning the screw until it sees some results.'

Meanwhile, there was good news for Chancellor Gordon Brown from figures showing public finances were £14.4bn in the black in January.