Stores report disappointing sales in May

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RETAILERS said May had been a disappointing month on the high street, in one of the last surveys published before this week's meeting of the Bank of England's Monetary Policy Committee.

The British Retail Consortium said like-for-like sales, which exclude new floorspace, fell for the second successive month. The more meaningful total sales value rose by 2.4 per cent in the year to May after a decline in April.

Andrew Higginson, chairman of the BRC's economics committee, said: "There is no prospect of any overheating on the high street, which accounts for almost a quarter of UK spending."

With official figures for industrial output - due tomorrow - expected to be subdued, the mixed news on the economy underlines the Monetary Policy Committee's dilemma.

On the one hand, the strong pound argues for a reduction in borrowing costs. The pound remained strong yesterday as the breakdown of talks on Kosovo kept the euro near a new record low.

Sterling's index ended unchanged at 106.1. The euro hovered just above its lows of $1.026 and 64.2p.

Weighing against a rate cut, however, some parts of the domestic economy are increasingly buoyant, including the housing market.

Even on retail sales, which the BRC's survey does not track closely month to month, the official figures have indicated an upward trend since the new year.

Yesterday's survey showed a 1.3 per cent drop in like-for-like sales after a 4.6 per cent decline in April. Total sales rose by 2.4 per cent after declining 1.4 per cent in the year to April.

Like the official figures, the survey has been erratic in recent months, partly because of the timing of Easter and Whitsun. However, total sales growth has picked up from its doldrums at the end of 1998.

Analysts on balance believe that interest rates will not fall this month. "The MPC could decide to cut rates to offset the impact of sterling on inflation. But it is a dangerous game to start doing that by stoking up domestic inflation," said Adam Cole, an economist at HSBC Markets.

However, few City experts would stick their necks out, as the Bank's statement with last month's interest-rate decision indicated that a stronger pound could tip the balance in favour of a reduction. The sterling index has gained more than 2 per cent since then.

This month the MPC's eight existing members, who split 4-4 in May, are joined by new member Sushil Wadhwani.