Powered by Guardian.co.ukThis article titled “Retail sales surge poses interest rates dilemma for Bank of England” was written by Phillip Inman Economics correspondent, for theguardian.com on Thursday 17th December 2015 13.29 UTC

For those economists itching for an interest rate rise, the latest retail sales figures arrived with exquisite timing.

After gorging on electrical goods on Black Friday, shoppers are looking to do more than deck the halls with boughs of holly this Christmas. Star Wars toys, it seems, are just an appetiser. And strong consumer demand needs a central bank response. And that response is higher interest rates.

If the US Federal Reserve can do it, then so can the Bank of England. Several analysts have made this demand after voicing concerns over the splurge in spending and the need for someone to calm things down.

After November retail sales volumes (excluding petrol) increased by 1.7% month on month and 3.9% year on year, Berenberg bank said: “Today’s data exceeded even our own long-held bullish view on UK retail.” . The figures were significantly above consensus estimates of 0.5% and 2.2%, respectively. And the amount spent by households went up, though not by as much.

Nevertheless, the Surrey couple who spent £25,000 on presents, while they may be a little freakish in the context of average figures from the Office for National Statistics, are an indication of the confidence felt among those who have a good job with decent prospects.

Yet the Bank of England has the same problem it had before the financial crisis, that of managing a two-speed economy with only one tool available. It may be true that higher interest rates will make consumers think twice before borrowing more cash and spending it on the high street, but what about the manufacturers struggling to make headway against the rising pound.

Higher interest rates will attract more funds to the UK, increasing pressure on the pound. This in turn will make exports more expensive and shrivel the manufacturing sector even further.

The British Chambers of Commerce said bumper retail sales figures highlight “the unbalanced nature of our recovery, which continues to rely excessively on domestic demand and on services”.

It wants rates to remain lower for longer. After the speech by the Bank’s deputy governor, Minouche Shafik, this week, which focused on the UK’s weakening pay growth and the likelihood that next year, with further government austerity, of slower growth, the business lobby is likely to get its way.

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