Retail sales still cooling but rates cut looks to be on ice

A SUMMER interest rate cut for hard-pressed borrowers was all but ruled out last night after official sales figures revealed signs of resilience on the high street.

Economists said news that shoppers were still out spending despite the credit crunch and soaring fuel and energy costs reinforced the belief that the Bank of England would not be cutting rates again any time soon.

The Office for National Statistics yesterday reported that sales volumes – total takings adjusted for inflation – fell 0.2 per cent in April compared with March, a far smaller decline than the 0.5 per cent that had been expected in the City.

Analysts said consumers could be proving more resilient in the wake of the liquidity crisis than other surveys and anecdotal evidence suggest.

They warned that high street sales would have to worsen considerably before the Bank of England's monetary policy committee (MPC) considered making further rate cuts.

The 0.2 per cent fall – which followed the same rate of decline in March in the first consecutive monthly fall since January 2006 – and was driven by a 1 per cent drop in food store sales.

Alan Clarke, an economist at BNP Paribas, said: "There is plenty more downside for retail sales growth over the coming months. However, it is becoming questionable whether this comes soon enough and severely enough to provoke further rate cuts before winter."

Vicky Redwood, UK economist at Capital Economics, described April's fall as "modest", adding: "The MPC thinks that a high street slowdown is required to keep a lid on price pressures. So unless sales growth really starts to tank, we are going to have to wait a while for the next interest rate cut."

CEBR economist Charles Davis said:

"With inflation at its upper limit and the Bank of England preoccupied with controlling the price pressures, interest rates are likely to remain on hold in June and likely July as well."

Retail sales volumes during the three months to the end of April were up 1.5 per cent, slightly down on the 1.9 per cent in the three months to the end of March. Household goods stores, including DIY outlets, suffered a 1.9 per cent sales drop – the biggest fall for three years – while the best-performing sector was "other stores", which includes entertainment retailers such as Zavvi and HMV.

The ONS pointed to strong sales of computer games and hardware, such as the latest Grand Theft Auto release and Nintendo's Wii Fit console.

Yesterday's government data came after the British Retail Consortium last week said like-for-like sales fell 1.5 per cent during April – their worst performance for three years.

Reacting to the ONS report, BRC director-general Stephen Robertson said: "This official data confirms our own findings that overall retail sales growth is slowing significantly."