Retail sales dip adds to rate cut pressure

RETAILERS HAD a glum February, according to official figures yesterday. Along with weak lending figures, the news convinced many analysts that another interest rate cut is likely.

The volume of sales on the high street dipped by 0.3 per cent last month. There was a 1.3 per cent rise in the year to February, but the Office for National Statistics said the underlying rate of sales growth had slowed.

"There is enough here to convince the Bank of England the economy needs a bit more of a lift," said Ciarn Barr, an economist at Deutsche Bank.

Willem Buiter, the one member of the Monetary Policy Committee to vote for an interest rate cut earlier this month, said yesterday he favoured moving quickly to a level at which rates would not have to be cut again. However, he added that confidence indicators had improved since January. "There has been a quick turnaround," he said.

Most analysts see the level of borrowing costs falling from the current 5.5 per cent to a trough of 5 per cent or even 4.5 per cent.

Yesterday's statistics showed declines in all categories of sales volumes in February. In year-on-year terms, sales of household goods remain the strongest, up 7 per cent thanks to the steady housing market. Department stores are faring poorly, with sales down 2.2 per cent in the year to February. However, the retail sales figures have been erratic. The timing of sales around Christmas and New Year makes them difficult to interpret.

Separately, the Bank of England reported a slowdown in the growth of broad money, M4. Its growth rate declined to 7.5 per cent last month.

Both the British Bankers' Association and Building Societies Association reported weak lending in February. Underlying growth in home loans remained buoyant, but Abbey National's securitisation of pounds 1bn of mortgages depressed the figure.

Adrian Coles, BSA director general, said a big increase in the number of loans approved signalled the possibility of a spring pick-up in the housing market. Approvals climbed to 1,950 in February, the highest level since September. Other new lending to individuals slowed to pounds 478m in February, well below the recent monthly average.