Sales pick up on high street in January

January brought a healthy rebound in high street sales after a disappointing Christmas dip, according to official figures yesterday. The stronger-than- expected rise added more fuel to the interest rate debate.

Minutes of last month's monetary meeting, also published yesterday, showed the Governor of the Bank of England still taking a tough line in calling for a half-point increase in the cost of borrowing. He has since indicated that he would now favour a smaller rise. But back in mid-January, Mr George said the Bank still thought it likely base rates would need to rise by half a percentage point "fairly soon". He said there was a case for making the full move straight away.

Kenneth Clarke turned down the advice, mainly on the grounds of the strong pound. According to the minutes: "The Chancellor said he did not believe that enough account had been taken of the strength of the exchange rate."

The sterling index closed 0.8 points higher at 97.6 yesterday, compared with 96.4 on the date of the January monetary meeting.

The minutes also report Mr Clarke saying that official figures exaggerated the fall in unemployment, with the smaller drop recorded in the quarterly Labour Force Survey a better guide to what was happening. Some economists found this brazen in the light of the fact that the Chancellor recently decided against switching to a monthly Labour Force Survey.

The Chancellor repeated his views yesterday, saying the latest retail sales figures did not change his judgement. He said: "If you look at the overall picture of the economy, we have good steady growth and a level of base rates which is going to keep us on target for inflation of 2.5 per cent or less."

Yesterday's figures showed the underlying volume of high street sales neither accelerating nor slowing down.

The year-on-year increase of 4.6 per cent in January was the highest since a record jump of 4.9 per cent in the year to March 1989. But the annual change in the three months to January, a better guide to the trend, was 3.9 per cent. Sales volumes increased by 0.6 per cent during the month, more than City analysts had expected.

The biggest rises in January were in clothing and footwear and household goods. Household goods and sales volumes at department stores were the strongest in year-on-year terms.

Some City experts took comfort from the fact that shoppers needed the inducement of low prices. "There is no high street price pressure," said Simon Briscoe of investment bank Nikko.

Others thought the latest advance on the high street, along with increases in real take-home pay, falling unemployment and the prospect of windfall gains from building societies, supported the Bank's case. "However, with the Chancellor acting on a political agenda, any rate rise will be delayed until after the election," predicted Ciarn Barr at Deutsche Morgan Grenfell.

Mr Clarke would not be drawn on interest rates yesterday. He said: "We will wait for the next meeting."