Growth and retail sales figures point to rate rise

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The Independent Online

The Economy posted its strongest growth for almost four years over the winter while retail sales soared in December, according to official figures that put the financial markets on alert for a rise in interest rates.

The Economy posted its strongest growth for almost four years over the winter while retail sales soared in December, according to official figures that put the financial markets on alert for a rise in interest rates.

The Office for National Statistics said the economy grew 0.9 per cent in the three months to December, the fastest rate since the peak of the last boom in early 2000.

This means the economy is growing at its long-term trend rate of 2.5 per cent for the first time after almost three years of lacklustre growth. Ed Balls, the Treasury's chief economic adviser, welcomed the news and also appeared to lend support to a rate rise.

The picture of a robust economy was echoed by figures on retail sales, which showed that shoppers defied forecasts of a weak Christmas trading session. "The economy has clearly broken free from the period of uncertainty that has dogged world activity for most of the past five to six years," said Philip Shaw, chief economist at Investec.

He said rates would probably rise by a quarter-point to 4.0 per cent in a fortnight's time before peaking at 5 per cent - a rise of a third in borrowing costs from their current levels.

Mr Balls, who is often seen as Gordon Brown's right hand man at the Treasury, said the economy was picking up strongly and becoming more balanced. "We have backed the MPC in the decisions it has taken to lock in stability as the economy strengthens," he said.

The ONS said the economy grew 2.1 per cent in 2003, up from 1.7 per cent the year before, and within with the forecast range the Treasury made in April.

Economists said a rate rise next month looked a near certainty in the wake of an upbeat survey from the British Chambers of Commerce, an accelerating housing market and mounting labour shortages. "There is little sign that the consumer has responded to November's rate hike so the Bank will have to stamp on the brakes again," said Nick Stamenkovic, an economist at RIA bond brokers.

The breakdown of the growth figures showed that the upturn was across the board, with the North Sea oil and gas sector the only one to show a fall. The growth was led by services, up 1.0 per cent on the back of large rises in retail, telecoms, air travel, business services and the public sector. The retail sales data appeared to settle the debate over the Christmas trading period, which some surveys indicated had been the worst since records began.

The ONS said growth in high street sales reached its highest level since May 2002. The volume of sales rose at a monthly rate of 0.9 per cent over the five weeks to 3 January, posting an annual rate of 4 per cent.

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