UK retail sales growth climbs to two-year high, CBI says

(Adds market and economist reaction, wraps in Santander trade

survey)

By David Milliken

LONDON, Sept 27 (Reuters) - British retail sales growth

unexpectedly surged to a two-year high in early September,

industry data showed, boosting the chances of a pick-up in the

pace of economic growth and a Bank of England interest rate rise

in November.

The Confederation of British Industry's retail sales balance

jumped to +42 from -10 in August, the highest in two years and

far above all forecasts in a Reuters poll of economists.

British consumers have been squeezed by higher inflation

caused in large part by the plunge in the pound after last

year's Brexit vote.

The Bank of England said this month there were signs

consumer demand might be picking up, helped by record-high

employment, though it was too soon to tell if this would offset

weak business investment.

Sterling rose modestly against the U.S. dollar after

the data and British government bond prices fell.

"The robust CBI survey will likely fan belief that the Bank

of England could very well raise interest rates ... as soon as

November," said Howard Archer, chief economist for consultants

EY Item Club.

The figures suggested gross domestic product growth would

pick up to 0.4 percent in the third quarter from 0.3 percent in

the three months to June, he added.

The BoE has said most of its policymakers expect to back a

first rate rise in more than a decade "in the coming months" if

the economy and inflation pressures grow as they expect.

Most economists polled by Reuters think this will come at

the BoE (Shenzhen: 000725.SZ - news) 's next meeting on Nov. 2.

Analysts were cautious about the significance of Wednesday's

retail sales data, with the outlook for Britain's departure from

the European Union still unclear and inflation continuing to

squeeze household budgets.

"With (Other OTC: WWTH - news) the pressure on incomes set to persist, retailers will

continue to face a challenging environment," CBI economist Anna

Leach said.

Archer (Oslo: 13072052.OL - news) said the strength in September's CBI data partly

reflected a snap back from weakness in August, and Samuel Tombs

of Pantheon Macroeconomics said there was limited read-across to

the official data that feeds into GDP calculations.

Official data have shown British retail sales volumes in

August recorded their biggest monthly gain since April, although

year-on-year sales growth remained well below last year's levels

.

The CBI survey showed that retailers expect strong sales

growth to continue into October, with the highest month-ahead

expectations since the start of the year.

Clothing retailers and grocers were the best-performing

sectors this month.

The BoE expects inflation to exceed 3 percent in October,

and to fall only slowly over the next couple of years. It also

expects wage growth to rise even if there is little sign of it

so far.

A survey of more than 1,000 export-focused businesses by

Santander, released on Wednesday, showed that almost three-

quarters feared an economic slowdown and two-thirds expected

Brexit to hurt them over the coming year.

Nonetheless, more than 70 percent of firms expect growth.

"We should not mistake concerns about the wider trade

environment for a sense of pervading doom and gloom," senior

Santander banker John Carroll said.

(Additional reporting by Polina Ivanova; Editing by William

Schomberg, Larry King)