Surprise fall in retail sales

An unexpected fall in retail sales in July has today cast further doubt on the prospect of another interest rate increase this year.

Despite City forecasts of a 0.2% rise in sales, the Office for National Statistics reported a 0.3% drop - the first monthly fall since January.

Sales at household goods stores dropped sharply, falling by 3.4%. It came after an increase in sales at electrical good stores in previous months, with football fans stocking up on new televisions ahead of the World Cup.

The ONS also revised June's figures, saying sales had increased by 0.7% rather than 0.9% as had first been reported.

On an annual basis, sales in July were 4% higher because of favourable comparisons with 2005, when they were affected by the July 7 London bombings.

Taken together with the release of the Bank of England minutes on its August rate rise, the ONS figures reinforced expectations that the Bank's monetary policy committee could hold off any further rate rise until next year.

The minutes, released yesterday, showed a 6-1 vote in favour of nudging rates up by a quarter point to 4.75%, with only David Blanchflower, the committee's newest member, voting for no change.

Despite the surprise decision, the tone of the discussions suggested little appetite for further tightening.

Much will depend on whether consumer spending is strong in the coming months. Analysts said this month's rate rise, combined with soaring utility bills, higher petrol prices, moderate earnings growth and an increasing tax burden, would peg back consumption.

"Consequently, we anticipate that growth will ease back from the above-trend rate seen in the second quarter," Howard Archer, of the consultancy Global Insight, said.

"As a result, we believe that the Bank of England may well hold off from any further interest rate increases until next year."

However, monthly retail sales figures tend to be volatile and the Bank will take care not to read too much into a set of monthly figures.