Mortgage, sales jump boost chance of rate rise

By Matthew Tostevin and Fiona Shaikh

LONDON (Reuters) - A surge in retail sales and an unexpectedly big rise in mortgage lending suggest three interest rate hikes since August have failed to curb consumer spending and make another rise look all the more imminent.

Data released on Thursday showed spending remained strong despite the biggest fall in take home pay since 1999.

The Bank of England said mortgage lending rose more than 10 billion pounds ($20.1 billion) in February versus forecasts of 9.4 billion. Mortgage approvals held steady at 119,000 when analysts had expected a fall.

A survey by the Confederation of British Industry showed retail sales volumes rose at their fastest pace in more than two years this month -- twice as fast as expected.

"Despite weak income growth, high debt levels and increasing household borrowing rates, consumers continue to spend," said George Buckley, chief UK economist at Deutsche Bank.

The BoE has raised borrowing costs by 75 basis points since last August to try to curb inflation, which has been above its 2 percent target for the best part of a year.

Financial markets are fully pricing in another quarter point increase to 5.50 percent by the summer and analysts said Thursday's data increased the chances that move could come as early as next week, and if not then in May.

"The bank will be concerned that current robust demand will boost retailers' confidence in their pricing power," said Howard Archer of Global Insight.