/www.bloomberg.com/ By Julia Kollewe
London, Oct. 24 (Bloomberg) -- U.K. retail sales probably grew at a slower pace in September than in August, increasing expectations the Bank of England will reduce interest rates, analysts said in advance of a government report.
Sales in Europe's second-largest economy increased 0.3 percent, compared with a gain of 0.6 percent the previous month, according to the median forecast of 23 economists surveyed by Bloomberg News.
Concern the global economic recovery and U.K. spending are slowing may spur policy makers to add to last year's seven rate cuts. Three of the nine members of the bank's rate-setting panel voted to lower rates this month, the first votes for a cut since February.
``Further evidence of a faltering global recovery or growing consumer nervousness could be enough to swing another two members behind a pre-emptive rate cut,'' said Ross Walker, an economist at Royal Bank of Scotland Plc.
Safeway Plc, the fourth-largest U.K. supermarket chain, said on Tuesday second-quarter sales growth slowed to 1.1 percent, from 3 percent in the first quarter. Rival J Sainsbury Plc said earlier this month that second-quarter sales growth slowed to 2.4 percent.
The government will release the figures at 9:30 a.m. London time. Sales increased at the slowest pace in four months in September, the British Retail Consortium, an industry lobby, said last week.
Driven By Consumers
Consumer spending -- about two-thirds of gross domestic product -- has helped compensate for a slump in manufacturing and kept the U.K. economy growing. That may change, according to the minutes of the Oct. 10 meeting of Bank of England policy makers.
``U.K. domestic demand (though not total demand) had been less strong over the second and third quarters than expected,'' the minutes said.
``Without a pre-emptive repo rate reduction now, domestic demand growth might fall faster than currently envisaged, leaving inflation below target for longer,'' the minutes said.
Expectations for a rate cut increased after the minutes were released, futures trading suggests. The yield on contracts due in December declined to 3.86 percent yesterday from 3.94 percent on Tuesday. The benchmark rate is at 4 percent.
Manufacturing still hasn't recovered from its worst slump in a decade. Confidence among manufacturers fell in October for the first time since January and factory orders declined, according to the Confederation of British Industry, the nation's largest business lobby group.
Elsewhere in the European Union, consumers are spending less. French consumer spending fell more than expected last month as sales of clothes, furniture and home appliances declined.
Germany's six leading economic institutes this week lowered their forecasts for economic growth this year and next, saying plunging stocks and the possibility of war in Iraq are eroding consumer and business confidence.