A surprise surge in retail sales combined with strong factory prices are both piling the pressure on the Bank of England to raise rates even higher than the 5.5 per cent mark expected to be hit next week.

The Confederation of British Industry’s distributive trades survey found the balance of retailers reporting year-on-year growth in sales volumes was plus 44 per cent, the highest since May 2004 and the fifth straight positive balance.

Analysts had been expectating a modest decline to plus 26 per cent.

The figures sent the pound back above $2 to $2.005 on growing expectations that the Bank of England will raise rates beyond the quarter point hike viewed by economists as virtually certain next week. More analysts are now wondering whether rates will need to rise to 6 per cent.

“The survey could tip the scales to UK rates peaking at 6 per cent rather than 5.75 per cent this year,” said David Brown, chief European economist at Bear Stearns.

The figures also fly in the face of the hopes of the Bank of England's Monetary Policy Committee whose April meeting minutes reveal they thought that “some slowing in consumption growth might be expected.”

Daragh Maher at Calyon said: “The strength in retail surveys and hard retail sales numbers shows little evidence of this expected slowdown, which suggests that the earlier hikes in interest rates have yet to bite,”

This concern will be heightened by this morning’s manufacturing PMI survey which showed input prices growing as their fastest rate since last October.

The CIPS/RBS survey of the UK manufacturing sector showed that activity in the sector dipped in March, but the Bank of England will pay more attention to data that shows manufacturers are growing increasingly confident in pushing through price rises, analysts said.

A rate rise next week, to 5.5 per cent, is considered a virtual certainty by City analysts. Expectations are now increasing of another rise before the autumn.

The output price index for April rose to 56.8, from 55.5 in March, to move within striking distance of the 56.9 recorded in February, its highest level since November 1999.

The input price index also climbed, to 63.2, a seven-month high, reflecting high oil and commodity prices and adding to the inflationary pressure in the economy.

Howard Archer, the Global Insight economist, said: "The survey is likely to bolster belief that interest rates will have to rise further after a seemingly certain 25 basis point hike to 5.50 per cent at next week's Bank of England meeting.

"We now expect interest rates to reach 5.75 per cent in the third quarter."

The headline purchasing managers’ index on UK manufacturing activity edged down to 53.9 in April from a downwardly revised 54.2 in March. A number above 50 indicates expansion.

Despite the dip, Mr Archer said that the reading indicated that the sector remained "very much in expansionary territory in April".

Astrid Schilo, the HSBC economist, said: "The drop was only marginally below expectations of an easing of the overall index to 54.0."

The details of the report showed a rise in output to it highest level since September 2006, at 57.1.

Export orders growth slowed, indicating that the strong pound is having an effect on overseas demand.

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