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Last Updated: Thursday, 15 September 2005, 10:10 GMT 11:10 UK
UK consumer spending remains flat
Shoppers on Oxford Street, London
A further interest rate cut may be needed to stimulate sales
UK retail sales for August remained unchanged on the previous month, as the Office for National Statistics revised downwards the annual figure for July.

The ONS said consumer demand remained weak but stable in August, adding that food sales had fallen during the month.

The year-on-year figures showed an 0.8% increase in sales, the weakest since May, while July's decline of 0.3% was revised to a bigger fall of 0.6%.

But underlying growth in the quarter rose 0.8%, its highest since November.

We still expect that the consumer slowdown will prompt more interest rate cuts
Jonathan Loynes, Capital Economics

The news comes as High Street outfits Next and Kingfisher said trading was tough.

Fashion chain Next reported its worst like-for-like sales in 10 years on Thursday, while home-improvement retailer Kingfisher said it had experienced its "toughest" trading conditions for years.

"Gloomy consumers are still staying away from the High Street amid concerns over the housing market and fears of a long haul of low growth and worrying fuel prices," said Dominic Walley at the Centre for Economic and Business Research.

"To some extent, today's data may also reflect tourists staying away in the usually busy August period, discouraged by the London bombs in July."

Food slump

The flat retail figures may mean the Bank of England has to cut rates once again, from the current 4.5% figure, to stimulate consumer spending.

Despite oil price rises pushing the August inflation figure to 2.4%, the "core" year-on-year inflation figure remains at 1.7%, giving the Bank some leeway to introduce another rate cut.

"We still expect that the consumer slowdown will prompt more interest rate cuts," said Jonathan Loynes, chief UK economist at Capital Economics.

Figures show that August's decline was driven by a large 1.2% month-on-month drop in food sales, the biggest fall in the sector for over two years and reflecting lower food sales by big supermarkets.

The ONS also pointed out that the three-monthly rate was likely to drop in September as June's strong increase was taken out of the equation.


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