No obstacles seen to further rate cut

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The grim winter weather and a double National Lottery rollover took their toll on the high street last month. Even though the trend in retail sales was the best for nearly a year, a bigger than expected decline in January cleared the way for the Chancellor to cut the cost of borrowing again in two weeks' time, analysts said.

Another reduction in base rates to 6 per cent, following the quarter point moves in December and January, would trigger a further round of cuts in mortgage rates.

Minutes of the January meeting between Chancellor Kenneth Clarke and Eddie George, Governor of the Bank of England, yesterday supported this interest rate optimism. They revealed that, contrary to City expectations, Mr George did not resist the quarter point reduction in base rates that followed the meeting.

The Governor said the question was whether to cut rates at once or wait for the next meeting in February. "There would be a price to pay cumulatively over time if the authorities were thought to want to reduce rates at the first opportunity," he said. But the Bank would not be seriously opposed to an immediate move.

With few new economic statistics due before the next monetary meeting on 7 March, the City can see no obstacles to a quarter point reduction in base rates to 6 per cent. Mr Clarke hinted as much in the minutes of the January meeting, arguing that as interest rates had been increased earlier than expected in 1994, "it was correct to maintain this approach when interest rates were being reduced as well."

The volume of retail sales fell by 0.6 per cent in January, but year- on-year growth picked up from 1.6 per cent to 2.3 per cent. This was the fastest growth since last February. The 12-month increase in the value of sales was unchanged at 5.6 per cent. Taking the latest three months together, sales volume was 1.2 per cent higher than the previous three months, the biggest increase since the three months to May 1994.