U.K. Retail Sales Drop Most in More Than a Year, BRC Says

U.K. retail sales fell the most in more than a year last month as poor weather and consumer caution on spending curbed demand at stores.

Sales at stores open at least 12 months, measured by value, declined 3.3 percent from a year earlier, the London-based British Retail Consortium said today. That’s the biggest monthly drop since March 2011. Including stores open less than 12 months, sales decreased 1 percent.
With Britain suffering its first double-dip recession since 1975, the Bank of England’s Monetary Policy Committee will decide tomorrow whether to add more stimulus to its existing 325 billion pounds ($524 billion) of bond purchases. Officials have to balance the need to bolster the economy with the threat of inflation, which has been above their 2 percent target for more than two years.

“If the MPC wants to expand quantitative easing, it has no shortage of justifications,” said Simon Hayes, an economist at Barclays Plc (BARC) in London. Still, inflation pressures and doubts about the effect of stimulus means the MPC may “prefer to hold fire unless a fresh crisis, or more prolonged weakness in demand, makes the case for QE irresistible.”

The sales slump was partly due to the weather, which curbed demand for clothes, shoes and gardening equipment. April registered the largest amount of rainfall for the month since records began in 1910, according to the U.K. Met Office. Sales a year earlier were boosted by the wedding of Prince William and Kate Middleton.

The BRC said that even taking these factors into account, the figures were “disappointing.”
BOE Decision

“The weakening economy is likely to mean people are even more cautious about their finances,” BRC Director General Stephen Robertson said. “Any significant improvement in the difficult underlying conditions” is “a long way off.”

The MPC will probably maintain the size of its QE program after a two-day meeting that begins today, according to 43 of 51 economists in a Bloomberg News survey. The remainder see an increase of at least 25 billion pounds.

Former Bank of England Deputy Governor John Gieve said yesterday the MPC will probably expand stimulus in a decision that will be a “close call.”

U.K. consumer-price growth accelerated to 3.5 percent in March from 3.4 percent in February. While the central bank forecast in February that inflation will slow to its 2 percent target this year, some MPC members have said they are less optimistic about the pace of slowdown. The MPC will have new projections at this week’s policy meeting that it will publish on May 16.
Pound Gains

The pound rose against the euro for a fourth day as political stalemate in Greece after elections raised concerns the country may leave the currency bloc. Sterling was little changed at 80.45 pence per euro as of 10:14 a.m. in London.

U.K. government bonds were little changed, with yield on the 10-year gilt at 1.938 percent today. It fell to 1.923 percent yesterday, close to a record low, as investors sought the relative safety of U.K. government debt.

The resurgence of concerns related to the euro-area debt crisis has sent stocks lower. Europe’s Stoxx 600 Index (SXXP) has fallen to the lowest in almost four months and is down about 8 percent from this year’s high on March 16. The FTSE 100 Index has dropped to the lowest this year.
German Strength

Still, German data today showed that exports unexpectedly increased for a third month in March as demand from outside the euro region offset weaker sales in Europe. Foreign sales, adjusted for work days and seasonal changes, rose 0.9 percent from February, when they gained 1.5 percent, the Federal Statistics Office said.

The report is the third in as many days to suggest Europe’s largest economy may have returned to growth in the first quarter. Factory orders and industrial production both rose more than economists forecast in March.

In Asia, Indonesia’s central bank will probably extend a pause in interest-rate cuts as the second-worst performing currency in Asia highlights the threat from inflation. All 21 economists surveyed by Bloomberg News forecast that Bank Indonesia will keep its reference rate at 5.75 percent tomorrow.

The central bank has left its benchmark unchanged since an unexpected reduction in February.
Rates Unchanged

The Bank of Korea will keep the benchmark seven-day repurchase rate unchanged at 3.25 percent for an 11th month tomorrow, according to all 17 economists in another survey. Bank Negara Malaysia will hold its key rate at 3 percent for a sixth meeting a day later, a separate survey showed.

Also in the U.K. today, KPMG LLP and the Recruitment and Employment Confederation said their index of hiring of full-time staff dropped to a three-month low of 51.9 in April from 52.4 in March. An index of hiring of temporary workers slipped to 48.2 from 48.5. Readings below 50 indicate contraction.

REC Chief Executive Officer Kevin Green said he expects “more private sector jobs being created in the second half of the year.” Still, “this growth is fragile though, and reports of a double-dip recession and crises in the euro zone could have a negative impact on that confidence,” he said.