LONDON (Reuters) - British retail sales surged in January as consumers pounced on electrical bargains and stocked up for an early Easter — a sign that consumer demand has yet to feel the pinch from the global credit crunch.

Sterling jumped more than a cent — putting it on track for its biggest daily gain versus the dollar in a month — and the FTSE-100 index of Britain's leading shares also rose as the figures assuaged fears that consumers are afraid to spend because of worries about the future of the economy.

"It's too soon to write off UK consumers," said Vicky Redwood, an economist at Capital Economics. "These figures will clearly reassure the Monetary Policy Committee that the economy is not slowing too sharply."

The Office for National Statistics said yesterday sales rose 0.8 percent last month, recovering from a 0.2 percent fall in December at four times the rate predicted by analysts. Retail sales were 5.6 percent higher on a year ago.

But retailers had to slash prices again to tempt shoppers into parting with their cash, leading some experts to argue that the spree will not last.

Electrical goods prices, for example, were cut by almost 15 percent on the year — the sharpest cost-cutting in that sector since records began more than a decade ago.

That helped drive household goods sales up 4.3 percent on the month and 14.8 percent on the year — the biggest annual rise since October 2001.

"Consumers were coaxed out of their boltholes by good price bargains in the January sales. Whether this will last is open to strong doubts," said David Brown, chief European economist at Bear Stearns International.

"The credit crunch, the housing slowdown and the loss of consumer morale will take their toll in coming months. The Bank of England hawks will take heart by these relatively robust numbers but it is unlikely to stop the trend to lower rates."

Nonetheless, the average value of sales was still up nearly five percent on the year and the ONS reported a "steady underlying growth" in retail sales.

The Bank of England cut interest rates earlier this month and most economists expect a further reduction by the end of June, given a softer outlook for the economy despite surging inflationary pressures.

Even some of the BoE's most hawkish policymakers are starting to acknowledge the slowdown could be quite sharp.

"I do expect the process of adjustment in the economy to result in a slowdown in growth, which may be more significant and sustained than we have have seen in the recent past during the era of inflation targets and central bank independence," said BoE hawk Andrew Sentance in a speech yesterday.

There are also signs that individual retailers are starting to suffer at the hands of weakening consumer confidence — which is currently languishing near a 12-year low.

Europe's biggest home-improvements retailer, Kingfisher, reported weaker than forecast sales at its UK market leader B&Q stores and said it expected a tougher environment this year. For more on those results, please click on.

However, the ONS said food sales held up well in January as consumers started to stock up ahead of an early Easter holiday in March — even though food and non-alcoholic drinks prices rose at their fastest annual rate since 2001.

And internet retailing continued to soar with non-store retailing and repair sales up a record 22.1 percent annually.