LONDON, United Kingdom (Reuters):

The prospect of a British interest rate hike in the new year increased on Wednesday, after two separate reports showed retail sales soaring and mortgage lending up by a record amount.

And minutes of the Bank of England (BoF) Monetary Policy Committee (MPC) meeting, showed all nine members voted to keep borrowing costs pegged at five per cent earlier this month, but a few appeared itchy to hike again if strong data persisted.

The biggest news for most MPC members was that house prices were rising faster than expected, and even after quarter-point interest rate hikes in August and November.

Certainly, borrowing costs at a 5-year peak seem to have done little to deter Britons from taking on even more debt.

The British Bankers' Association said on Wednesday that mortgage lending scored its strongest, monthly increase on record in November, rising by £6.5 billion.

And while many retailers have been full of doom and gloom about the crucial Christmas shopping season - music retailer HMV Group warned on profits on Wednesday - a CBI survey showed Britons shopping in earnest this month.

The Confederation of British Industry said sales volumes rose at their fastest annual rate in the first two weeks of December.

"The risk that the BoE may go to 5.25 per cent in February looks substantial," said Holger Schmieding, economist at Bank of America.

Tee International Monetary Fund agreed that rates may have to go up further, if wage deals pick up as it predicted economic growth of 2.75 per cent for both 2007 and 2008 in its annual healthcheck of the British economy.

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BoE policymakers have been fretting for months that above- target inflation, will lead workers to demand higher wages and hence entrench a higher price level.

So far, there has been little sign of this happening, but the threat of higher borrowing costs will remain very much alive until the BoE is satisfied people are not getting inflationary pay rises.

"While inflation was still projected to fall back in 2007 as the effect of higher energy prices faded, the Committee remained concerned that the pick-up in the near-term could affect forthcoming pay increases," minutes of the December 6 and 7 BoE policy meeting said.

But while some MPC members were focused on upside risks to inflation, others placed more weight on the downside.

Of particular concern was a possible slowdown in the United States because of the housing market there, more slack in the labour market and slower-than-average British consumer spending growth.

Moreover, they want to see how the economy responds to two interest rate hikes already this year.

"The door is still open to the possibility of a move up in rates in February - but there was plenty in the minutes that gave vindication to our view that rates are on hold at five per cent," said Allan Monks, economist at JP Morgan.