March 16, 2006

Retail sales continues weakness

by Brian Turner

Economy

Retail sales saw another fall last month according to the Office for National Statistics (ONS), continuing a trend in weak consumer spending.

In a year-on-year comparison, retail sales were down 0.9% on the same period in 2005.

The figures also co-incide with a slight rise in unemployment, and could finally signal the first real signs of a reverse in the economy.

Poor consumer spending with rising unemployment are going to put pressure on the Bank of England to lower interest rates.

The trouble there is that in doing so, the brakes will come off the UK housing market.

This could only lead to continued enlargement of what has almost certainly become an unsustainable investment bubble, resulting in further – and more difficult problems – in the mear to mid-term.

Conversely, inflation due to energy prices, plus slow but steady increases in earnings, are both going to create antigonistic pressures for a rise in interest rates.

Although market expectation has been that interest rates may be cut later in the year, around the summer and autumn, the Bank of England (as ever) will try to be slow to react after ponderously observing general trends before attempting to make safe decisions.

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