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Sharp drop in UK retail sales boosts expectations of new round of stimulus
LONDON (AP) ' Retail sales fell sharply in Britain during the wettest April in a century, official data showed Wednesday, a piece of bad economic news which analysts say could help prod the Bank of England to approve more monetary stimulus.
The Office for National Statistics said the volume of sales in April dropped 2.3 percent from March and 1.1 percent from a year earlier. Comparisons with last year were skewed by warm weather in 2011 and the wedding of Prince William and Kate Middleton, which had combined to boost spending, the agency said.
Special factors aside, the April sales drop weighs down on hopes that Britain's economy will break out of recession in the second quarter, said Howard Archer, European economist for IHS Global Insight.
"It is evident that there are currently a lot of pressures on consumers as they face uncertain and worrying times," Archer said.
The weak figures ' combined with a sharp drop in inflation in April to 3 percent ' have fueled expectations that the Bank of England will have to approve more monetary stimulus this year. On Tuesday, the International Monetary Fund urged both the coalition government and the central bank to do more to boost economic activity.
Minutes from the last meeting of the Bank's Monetary Policy Committee showed that several members thought the factors for and against more stimulus were "finely balanced," though only one of the nine members voted to expand the 325 billion pounds ($510 billion) stimulus program of asset purchases, known as quantitative easing. All nine members voted to keep the key interest rate at the all-time low of 0.5 percent.
"It still looks like it won't take much to tip the committee into doing more QE," said Samuel Tombs, U.K. economist at Capital Economics. "Indeed, if we continue to see data as weak as April's retail sales figures, then a resumption to QE may only be a couple of months away."
David Miles was for the second consecutive month the only member of the rate-setting MPC to have voted for more economic stimulus this month, according to minutes of the meeting published Wednesday. However, several members ' the minutes didn't say how many ' thought the decision was finely balanced.
The IMF said Britain needs looser monetary policy, perhaps even through a cut in interest rates.
But MPC members "felt that the existing stock of past (asset) purchases, together with the low level of bank rate, would continue to impart a substantial monetary stimulus to the economy for some time to come," the minutes said.
They also expressed concern that an extra holiday in June to mark the Diamond Jubilee of Queen Elizabeth II was likely to reduce output in the second quarter, though they expected a boost from the Olympic Games in the July-September quarter.