Analysts scrambled to raise their forecasts after the first official figures for the crucial month of December revealed a much bigger shopping splurge than expected, although the healthiest sales volumes were driven by deep discounting.

Other data showed that the supply of broad money, a big concern of Mervyn King, the Bank’s Governor, rose strongly in December, while an index of pay settlements picked up sharply, in the first clear sign of inflation feeding into January wage negotiations.

Hawks at the Bank of England are likely to see all those figures as red warning lights and economists fear increasingly that they will force up interest rates for the second time in as many months in February to reach 5.5 per cent.

After that, Philip Shaw, of Investec, said, there was now a “serious risk of a further move to 5.75 per cent”. Interest-rate futures fell after the Office for National Statistics published the retail figures, and the sterling futures market is almost completely pricing-in two additional rate rises by July.

Sales volumes on the high street rose by 1.1 per cent in December, well ahead of expectations and after a 0.2 per cent rise in November.

The increase was the strongest for any month since June 2005 and the best December reading since 2003. During 2006, sales volumes rose by 3.2 per cent, stronger than 2.1 per cent in 2005 but lower than in each of the three previous years.

Retail strength over Christmas was driven mainly by household goods stores, supermarkets and online sales. In household goods stores, volumes rose by 5.2 per cent, although figures showed that was driven by a heavy price cut.

However, a measure of inflation within the figures showed that prices have been rising year on year in the high street for four months — the longest run of retail inflation since April 1999.

The figures tied in with recent comments by retailers. Stuart Rose, the chief executive of Marks & Spencer, said last week that the appetite for reducing prices “seems to have diminished a bit”. David Greenwood, the finance director of JJB Sports, said: “Prices are not going to fall further. The significant deflationary impact of the Far East has happened.”

George Johns, of Barclays Capital, forecast that the Bank would keep rates on hold next month. “Clearly, though, the risk of a February hike has increased on the back of today’s surprise,” he said.

More strong news came from data on the money supply, which the Bank’s Monetary Policy Committee has cited as a factor behind all three interest-rate rises since August. M4, one measure of money supply, grew by 0.9 per cent in December for a 12.8 per cent annual gain, below but close to the recent trend.

The Bank’s chief fear — that wages will respond to higher inflation — appeared to be justified by the release of a report from Industrial Relations Services, the pay consultants. It said that the median wage settlement of a snapshot of 22 deals in January so far was 3.6 per cent, sharply up from the 3 per cent median in December that has been maintained for more than 3½ years.

The only dovish piece of news was a further sign that the housing market may be cooling. The British Bankers’ Association said that net mortgage advances had dropped to £5.8 billion in December, from £6.7 billion in November.

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