BOE chief eyes rate rise

January 4, 2002 Posted: 1218 GMT

LONDON (CNN) -- Bank of England Governor Eddie George says he may raise interest rates to slow consumer demand if the global economy continues to recover.

With retail sales rising and interest rates at the lowest level in four decades, George said consumers were spending too much and piling up too much debt – a situation which he said was "unsustainable."

"If the world economy begins to pick up, as I suspect it will from the middle of the year, then consumer demand will have to moderate," George said in a BBC interview.

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"We may have to actually act to cause it to moderate if it doesn't happen of its own accord, and that is when we would be putting up interest rates."      

The BOE meets next week to decide on interest rates. The central bank has cut its key rate seven times in the past year. It now stands at 4 percent, the lowest level in 37 years.

The BOE released figures on Friday showing borrowing by British consumers jumped in November by the biggest amount in eight years.

On Thursday, the Confederation of British Industry reported that UK retailers enjoyed the best start to the Christmas shopping period in 14 years, while the National Building Society said housing prices rose 1.9 percent in December, to the highest level since 1988.

In France, consumer spending is continuing to hold steady, helped by signs of an improving economy and enthusiasm for the newly launched euro currency.  

The statistic office INSEE said on Friday that French consumer confidence was unchanged in December from the previous month. But it warned spending could weaken in coming months as the novelty of the new notes and coins wanes.

Meanwhile in Europe, inflation rose 2 percent in December from a year earlier, compared to a rate of 2.1 percent in November.

The European Central Bank on Thursday decided to leave interest rates unchanged, after cutting rates four times last year to 3.25 percent.

With inflation now hovering at the ECB's target level of 2 percent, economists expect the ECB to keep rates on hold in the near term as it monitors the impact of the euro launch on the economy.