British retail sales surged unexpectedly in May, rising at the fastest rate in two decades as shoppers ignored the gloomy economic climate and rushed to the high street.

The surprisingly strong retail figures shocked economists, bolstering fears that the UK interest rate will rise shortly from 5 per cent. The Bank of England is battling to keep inflation under control after it rose to 3.3 per cent in May.

The pound jumped by a cent against the dollar as markets priced in a rate rise in the next few months.

Record sales of food and clothing, possibly helped by the recent warm weather compared to last year's downpours, pushed retail sales up by 3.5 per cent last month - the fastest pace of growth since the series began in 1986.

Analysts had expected today figures from the Office for National Statistics to show 0.1 per cent decline.

Sales volume in predominantly food stores increased by 3.3 per cent, the largest rise in the series, while sales volume for predominantly non-food stores rose by 3.9 per cent, the largest increase since March 1991.

Howard Archer, chief UK and European economist at Global Insight, said the figures were "absolutely astounding," while Philip Shaw, chief economist at Investec, said he was "staggered".

Geoff Dicks, economist at RBS, said consumers were still willing to pay full prices for goods, as prices rose by 0.6 per cent in May.

"The odds of a rate hike in the next month or two just got a lot shorter," he said.

However, some questioned the official sales figures which deviate from evidence offered by major retailers, such as Sainsbury’s and Woolworths, which have complained about challenging conditions.

The chances of a rate rise were further augmented after Mervyn King, Governor of the Bank of England, indicated last night that the Bank's Monetary Policy Committee (MPC) would take any action it needed to control inflation, which is set to rise to more than 4 per cent before the end of the year, well above the Bank's 2 per cent target.

Speaking at Mansion House in the City, he said: "There should be no doubt that the MPC is prepared to take whatever action is needed to return inflation to the 2 per cent target and to keep expectations of inflation in the medium term anchored to the target."

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