LONDON, June 19 - Britain's retail sector suffered an unexpected fall in May, the first since January and one which may raise hopes of another interest rate cut from the Bank of England in the near future. The Office for National Statistics (ONS) reported that sales fell 0.1 percent last month from April, the weakest performance since January's 1.0 percent monthly fall and following April's 0.4 percent rise. City economists had on average expected a 0.2 percent rise in sales so the numbers will disappoint analysts who have worried that consumer spending may be slowing more rapidly than is desirable given that exports remain weak because of a moribund world economy. Gilts and interest rate futures rallied after the numbers were released with the long gilt future up seven ticks to 125.0 pounds. The pound fell back slightly on the foreign exchanges to $1.676 and 69.40 pence to the euro. "This is generally quite weak. It does support the notion of a rate cut in July or August though there is of course a lot of data to come out before then," said George Buckley, economist at Deutsche Bank in London. The ONS said sales last month stood 3.1 percent higher than a year earlier. On a three-monthly basis, which smoothes out monthly fluctuations, sales were up 0.5 percent from the previous three months and 3.4 percent higher than a year earlier, the weakest showing since July 1999.
NOT MUCH STRENGTH ANYWHERE
Within the data, only household goods and non-store retailing and repair showed any strength while supermarkets suffered a small fall on the month. Retail sales have been expected to slow since April's sharp national insurance and council tax rises, which have taken money out of Britons' pockets. The Bank of England last cut interest rates in February, to a 48-year low of 3.75 percent but has held them steady since. Most economists expect another quarter point cut or two before this year is out, however. The ONS also released data showing the public finances fell deeper into the red than expected last month. The public sector net cash requirement -- the difference between government spending and receipts -- came in at 5.8 billion pounds, compared to 2.7 billion in May last year and an average forecast of a deficit of 4.7 billion. The government's preferred accruals-based measure of the public finances, public sector net borrowing, showed a shortfall on the month of 6.4 billion pounds, the biggest monthly deficit since March 1995. There was a shortfall in the first two months of the fiscal year of 7.79 billion pounds, similar to last year's 7.37 billion.
Spending by government departments in the first two months of the year was 13 percent higher than a year ago while tax receipts, hit by a sluggish economy, were only up 2.5 percent.//www.rwuters.com