Boost to rate doves as retail sales drop by 1.2%

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The Independent Online

Advocates of keeping interest rates on hold for another month were handed fresh ammunition yesterday by figures showing a surprise plunge in retail sales last month.

Advocates of keeping interest rates on hold for another month were handed fresh ammunition yesterday by figures showing a surprise plunge in retail sales last month.

Shoppers deserted the high street after the end of the January sales with total sales dropping 1.2 per cent, the steepest fall for 20 months, the Office for National Statistics said. The drop all but wiped out a strong 1.6 per cent surge in January and was much worse than the 0.1 per cent fall expected by the City. It pulled the annual growth rate down to 4.7 per cent from 6.3 per cent.

The fall in February's sales was led by household goods,such as electrical appliances and furniture. They fell back almost 4 per cent in both volume and value terms after gains of 7 per cent in January.

Although the overall three-monthly rate is still a relatively strong 5.5 per cent, analysts said the data would add to a growing feeling that recent strong figures - such as a 5.9 per cent surge in January wage growth reported on Wednesday - were a fallout from the millennium.

Geoffrey Dicks, an economist with Greenwich NatWest, said: "If you had to weigh up the two sets of data then the February one is more current... There is not much fog in there."

"This should be sufficient evidence to support the case for base rates remaining on hold next month," said Philip Shaw, an economist at Investec, adding that strong growth elsewhere in the economy meant it had only delayed the next hike.

Stewart Robertson of Lombard Street Research, said the MPC deserved praise for starting to hike rates early in the cycle. "It is quite clear that higher rates have had an impact on spending in key areas," he said.

Following very strong sales and wages data for December and January, the Bank made it clear it is more interested in the trend than in one month's figures. This would further support a policy of taking no action until March's data are published later next month.

The retail sales figures also showed that any increases in sales volumes had been won only by deep price-cutting. While volume rose 4.7 per cent, by value it was only 3.3 per cent ahead with the difference being made up by price deflation.

But it is far from clear that the Monetary Policy Committee believes the economy has shifted gear into a new paradigm of strong growth and low inflation.

On Wednesday two members gave contrasting views. DeAnne Julius said technological advances would raise productivity and allow the economy grow to without triggering inflation. Her colleague John Vickers said new technology would simply boost demand and supply and would have little impact on inflation or interest rates.

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