A new batch of figures showing unemployment sharply lower, a big rise in employment in the service industries, stronger-than-expected high street sales and rising pay inflation coincided with the publication of minutes showing that Eddie George, Governor of the Bank of England, had urged the Chancellor to raise interest rates last month.
The minutes report Mr George saying: "To have a reasonable chance of hitting the inflation target two years ahead, the Chancellor needed to begin to take action now." But Mr Clarke turned down the recommended quarter- point rise in base rates, and is expected to turn down the Governor's advice at their next and possibly final meeting on 10 April.
"An immediate post-election rise is on the cards now," said Kevin Darlington, an economist at Hoare Govett.
The shock for the City in yesterday's figures came in an increase in underlying average earnings growth to 5 per cent in January. December's figure was revised to 4.75 per cent. The pace of pay inflation has risen by a full point since October.
"It is the most rapid acceleration of that magnitude in earnings since the 1970s," said Leo Doyle of Kleinwort Benson.
Higher bonuses in the service sector - especially the City - were partly to blame for the jump. "Even so, the recent trend is clearly still worrying," said David Walton at Goldman Sachs. Reports of skill shortages, especially in services, have become widespread.
The Bank of England would be pushing even harder for higher base rates, he predicted, and a rise of half a point after the election could not be ruled out.
Inflation figures due today are expected to provide the Government with some temporary relief. Some of the effects of the strong pound, which have sent inflation at the factory gate tumbling, are expected to feed through to retail prices in the short term. But most experts expect this to be short-lived, with home demand likely to send retail price inflation higher again later this year.
Shares in London ended lower, with the FTSE 100 index down nearly 25 points at 4,332.2. Gilts lost nearly a full point, with some traders nervous about today's retail price figures.
Other indicators also pointed to a tight jobs market. The headline unemployment claimant count fell by 68,200 to 1.74 million in February.
The total was lower in all regions and for both men and women. It was the first dip below 1.75 million in six years, and is likely to pass the 1.5 million mark by the end of the year.
The Office for National Statistics said the introduction of the Job Seeker's Allowance in October was distorting the monthly claimant figures, and it was not possible to adjust for this fully. Nevertheless, it said the downward unemployment trend was higher than the 15,000-20,000 it had been estimating previously.
Notifications of new vacancies to JobCentres increased by 40,600 to the highest level since January 1980. The number of unfilled vacancies, at 270,000, is above the late 1980s peak.
The latest employment statistics showed an increase of 54,000 in December, most of it in services. Manufacturing industry added only 1,000 new jobs in December, but another 15,000 in January.
Other official statistics confounded expectations that spending on the high street would turn out to have been weak last month. Despite earlier surveys suggesting a slowdown, the volume of retail sales rose by 0.5 per cent, taking them to a level 4.4 per cent higher than a year earlier. This was slower than January's 4.8 per cent rebound but similar to last autumn's pace of growth.
Increases were spread almost across the board, with two exceptions. The volume of supermarket sales was flat last month, while mail order continued its decline. Sales of clothing and footwear bounced, probably due to widespread price cuts in February. Sales of household goods and department store sales continued to be buoyant.
"The good news is that the volume growth has been achieved by price discounting," said David Hillier at BZW. But he noted that prices of services, as opposed to high-street goods, were rising annually at a rate of above 4 per cent.
Expectation of higher borrowing costs to come in the UK was cemented by figures showing that US consumer prices rose more than expected last month. Many analysts reckon the Federal Reserve will increase American interest rates by a quarter point after its Open Market Committee Meeting next week. "If the Fed raises rates and the UK statistics continue to power ahead, monetary policy on this side of the Atlantic will be left languishing in the mire of the political business cycle," said David Bloom, an economist at James Capel.
Comment, page 21
Hurdles for jobless, page 24