Strong retail sales soothe economy fears for now

By Matt Falloon and Chloe Fussell

LONDON (Reuters) - Shops enjoyed far stronger sales than expected in February as consumers weathered a global credit storm that has left economists split over the timing of an anticipated Bank of England interest rate cut.

The Office for National Statistics said retail sales jumped 1 percent last month and rose 5.5 percent from a year earlier, confounding analysts who had predicted a 0.2 percent fall.

The data also showed consumers kept on spending despite the fact shops did not cut prices in February as much as in January, with increased buying of food a major factor.

"With confidence at a 13-year low, real income growth weak and housing wealth falling, it's hard to see what is keeping consumers spending," said Vicky Redwood, Capital Economics.

"Yet these figures suggest that they certainly are, boosting the chances that the Monetary Policy Committee will hold on to May before cutting rates again," she said.

The pound extended gains versus the euro and sterling interest rate futures fell into the red as doubts about the chances of deep interest rate cuts this year took root.

The Bank is under pressure to cut the rates from 5.25 percent to ease fears of an economic slump this year due to lingering problems in the banking sector and the risk of a U.S. recession.

The Bank pumped further funds into the system on Thursday to try to ease lending conditions and was due to meet bosses from Britain's top banks later in the day to discuss market turmoil.