King dashes hope of early cut in interest rate

The Bank of England will not have a full picture of the key Christmas shopping period in time for its next meeting on interest rates, the Governor Mervyn King said last night.

In comments that will be seen as a signal that rates will stay on hold, he said "little significance" should be put on one month's figures such as the official retail sales numbers being published this morning.

"The true meaning of the Christmas story will not be revealed until Easter - or possibly much later," he told business leaders at a CBI dinner in Manchester. "The most important lesson from past experience is that, whatever the number turns out to be, it is foolish to put much weight on any one month's figure, especially at Christmas."

Mr King warned that retail sales captured only 40 per cent of consumer spending, which includes services, leisure and holidays. "So retail sales are not always a good guide to movements of consumer spending as a whole," he said.

The latest figures are expected to show retail sales rose modestly in December but a mixed batch of company trading reports and conflicting private surveys have left economists uncertain over the strength of the consumer.

The Office for National Statistics figures will cover the five weeks from 28 November to 1 January, meaning they will include only the first few days of the Christmas sales.

The British Chambers of Commerce published figures yesterday showing a rebound in corporate confidence. Its survey showed manufacturers' exports hit an eight-year high this winter.

Mr King also fired a warning shot across the bows of the Treasury before what is likely to be the last Budget before a general election. He said Gordon Brown's fiscal rules had constrained public deficits but urged the Chancellor to look forward as well as backwards over the past cycle. Several economists warned that while the Treasury will meet its rule of borrowing only to invest over the current economic cycle, it will break it in the coming cycle.

Mr King used the speech to reiterate that there could be a risk to its inflation target from the rising costs in the pipeline. He said: "There would be risks to inflation in the medium term if we were to allow inflation of domestically produced output to rise above target."