/www.bloomberg.com/
By Michael Bleby
London, Aug. 22 (Bloomberg) -- U.K. retail sales rose less than expected in July as consumer confidence declined and stocks slumped. Purchases at department stores dropped.
Sales gained 0.3 percent last month after declines in May and June, government figures showed. Economists surveyed by Bloomberg News had predicted an increase of 0.5 percent.
Spending kept Britain's economy growing last year while the U.S., Germany and Japan sank into recession. The FT-SE 100 Index has declined 15 percent this year and consumer confidence fell to the lowest level in seven months in July. GUS Plc, the country's largest catalog-shopping company, said first quarter sales growth slowed at its Argos chain.
``This year is going to be much more difficult,'' said Andrew May, the finance director of Monsoon Plc, a women's wear retailer with more than 280 stores in the U.K. ``With the fall in the stockmarket people are going to feel a bit poorer.''
Consumer confidence in Britain, the world's fourth-largest economy, fell to the lowest level in seven months in July, Martin Hamblin GfK, a research company said in a report prepared for the European Commission.
The benchmark stock index shed 9 percent last month. Stocks and pensions account for about 45 percent of household wealth in the U.K., about the same as the value of dwellings, according to HSBC Bank Plc.
Interest Rates
Sales at department stores dropped 1.8 percent in July, the biggest monthly decline since April 2000. Sales at shops selling household products -- goods ranging from televisions and digital video disc players to saucepans and curtains -- fell 0.9 percent.
The Bank of England cut the benchmark lending rate seven times last year to a 38-year low of 4 percent to spur consumer spending, which accounts for about two-thirds of the economy.
``If we get further indications sales are slowing, the bank could cut rates,'' said George Buckley, an economist at Deutsche Bank AG. ``There's about a 40 percent chance of a cut.''
Government debt pared losses. The yield on the 5 percent note maturing in 2004 rose 2 basis points from Wednesday to 4.04 percent. Before the sales figures were published, the yield was 4.09 percent. A basis point is 0.01 percent.
Discounting
Retailers are doing all they can to woo shoppers.
Clothing retailer Next Plc last month cut prices on end-of- season lines by about 50 percent in its summer sales, and opened stores before 6 a.m., at least three hours earlier than usual. Next said in May that sales growth at stores open at least a year slowed in the first 15 weeks of its fiscal year.
``The worry is that consumers will stop spending,'' said Aongus Buckley, an economist at GNI Ltd., a derivatives brokerage. ``The housing market is going to be key.''
The lowest interest rates since 1964 have pushed up house prices at their fastest pace in 13 years. At the same time, real estate agents in England and Wales were the least optimistic in five months in July, a survey of 338 property appraisers showed.
As house prices rise, people borrow more against the increased value of their dwellings. Mortgage equity withdrawal rose a record 8.1 billion pounds ($12.4 billion) in the first quarter, Bank of England figures showed.
Policy makers on the central bank's nine-member rate panel will leave rates unchanged for the rest of the year, according to the median forecast of 31 analysts surveyed by Bloomberg News earlier this month.
U.S. consumer spending may be waning. Sales in July grew 1.2 percent from a year ago, boosted by zero-interest financing for automobiles and a rise in gasoline prices. Excluding cars and fuel, sales were unchanged.
Retail sales in Germany, Europe's largest economy, fell 2.2 percent in June from May as rising unemployment and falling stock markets kept shoppers away from stores.