Modest rise in retail sales means a close call on rates - Business - News - The Independent

Modest rise in retail sales means a close call on rates

A CUT in interest rates at today's meeting of the Monetary Policy Committee (MPC) cannot be ruled out, City analysts concluded yesterday after a new survey showed a modest retail sales improvement in April.

The Confederation of British Industry reported a slight rise, for the second successive month, in the volume of sales on the high street. The three-month average for sales volumes - a better indicator of the underlying trend - reached its highest level since July.

But the CBI, as with other business organisations and unions this week, urged the monetary committee to reduce the cost of borrowing by another quarter point.

Alastair Eperon, chairman of the CBI's distributive trades survey panel, said the slight increases in sales volumes suggested that consumers were starting to spend money again, but he added: "The momentum needs to be maintained."

City opinion remains divided, with some economists expecting a rate reduction today and others looking ahead to the likely need for rate increases later in the year.

Marian Bell, an economist at Royal Bank of Scotland, said: "I think there is a danger the monetary committee will cut again before they stop, and will need to reverse it later."

The lags in monetary policy meant that the lower interest rates since autumn 1998 had not yet had their full impact on the economy, which was already recovering, said Ms Bell.

But the renewed strength of the pound, whose index climbed by 0.3 points to 105.0 yesterday, favours a rate cut. Speaking on the exchange rate, John Townend, Bank of England director for European matters, yesterday said: "There is no question that it does affect the UK's competitiveness."

Richard Iley at ABN Amro said that yesterday's CBI survey results, although not a good guide to official retail sales figures, showed that consumer demand was still patchy.

The CBI said the number of retailers reporting higher sales exceeded those reporting falls by 15 per cent, similar to March's 14 per cent balance. The three-month average rose to 10 per cent from 2 per cent.

Retailers of footwear and specialist foods, as well as off-licences, reported the biggest increases in sales last month, but the sales of new cars dropped sharply in April after the surge in March caused by the start of the new T-registration period.

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