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LONDON: Retail sales sank in June to record the largest monthly drop for 22 years, official data showed on Thursday, as consumers slashed spending amid an economic slowdown across the country.
Analysts warned that shops would struggle even more in the coming months to keep their tills ringing in the face of a flagging property market, rising unemployment and the ongoing impact of the global credit crunch in Britain.
Higher inflation caused by elevated fuel and food costs also meant that retailers could not rely on an interest rate cut from the Bank of England to lift consumers' disposable incomes and in turn boost the fortunes of shops, economists added.
"June's UK retail sales data finally showed the official (retail sales) data moving into line with the gloomy anecdotal evidence," said Capital Economics analyst Vicky Redwood.
"What's more, we think that spending growth will weaken considerably further, as house prices keep falling and inflation and unemployment rise further."
On a monthly basis, retail sales sank by 3.9 per cent in June from May, the Office for National Statistics (ONS) said in a statement published on Thursday.
That was the heaviest monthly fall since 1986 and compared with market expectations for a 3.0-per cent decline. The reading also compared to an upwardly-revised gain of 3.6 per cent in May.
"The correction in retail sales in June was so marked that it more than wiped out May's surge," said economist Howard Archer at Global Insight.
"The prospects for consumer spending over the coming months continue to look pretty bleak."
On a monthly basis, the ONS said food sales had fallen by 3.6 per cent in June from May and non-food sales shed 4.5 per cent. Both figures were the largest monthly falls since 1986.
"The Bank of England looks far from ready to provide support for the (retail) sector. This is because of the continuing inflation threat," said Investec economist David Page.
BoE policymakers were split three ways when they left interest rates unchanged earlier this month, reflecting the dilemma they face in controlling soaring inflation whilst boosting growth.
Britain's 12-month inflation rate jumped to a 16-year high of 3.8 per cent in June, driven by soaring food and fuel prices.
The central bank's rate-setting monetary policy committee had voted 7-2 to leave borrowing costs at 5.00 per cent on July 10, according to the minutes of the latest meeting that were released on Wednesday.
One of the nine policymakers had called for a quarter-point cut to borrowing costs in July and another for a hike by the same amount.
The economic growth meanwhile recorded the lowest quarterly expansion for three years during the first quarter of 2008.
Gross domestic product expanded by just 0.3 per cent in the January-March period compared with the final three months of 2007.
On Friday, analysts were set to get their hands on a first official estimate of economic growth in the second quarter.
- AFP/jk
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