July's poor retail sales add to pressure for rate cut

Retail sales remained close to a 22-year low last month, the CBI said yesterday, providing further reason for the Bank of England to cut interest rates tomorrow.

The CBI's monthly survey reported 47% of retailers had a declining volume of sales in July, compared with 29% who said sales were up, giving a negative balance of 18%. This was barely changed from June's 19%, the weakest since the survey began in 1983.

"The argument for a wait-and-see approach is fading fast. It is time for the Bank of England to get off the fence," Sir Digby Jones, CBI director general, said.

The Bank's monetary policy committee is widely expected to cut interest rates by a quarter of a percentage point tomorrow. It would be the first cut since July 2003. Data shows deteriorating sales and confidence in the retail, manufacturing and housing sectors.

The CBI survey was conducted between June 29 and July 20, and the CBI indicated that the first London terrorist attacks had little if any impact on retail sales nationwide.

"It doesn't look like the weakness was due to the disruption from the London terrorist attacks," Vicky Redwood at Capital Economics said.

Most analysts agree the bombs had a "displacement effect" with shoppers going online or to suburban malls. Figures released yesterday from retail monitor FootFall showed that shopper visits across the UK fell by only 1.1% in July and the decline probably had more to do with the weather than the attacks.

"The area outside central London has seen the number of shoppers rise. It appears consumers are still out and shopping," said Natasha Burton at FootFall.

Of greater concern is the sluggish CBI retail figures over the past five months which indicate that the consumer slowdown could be long term.

Howard Archer at Global Insight said: "The continuing weakness in retail sales reinforces concern that the slowdown in consumer spending has become entrenched."

Figures from the Office for National Statistics for June revealed a moderate 1.3% increase in retail sales, but the CBI July survey suggests the trend will not continue. Separately, Nationwide forecast a 90% probability that interest rates will be cut tomorrow even though it released figures showing an upturn in consumer confidence in July.