Sterling is falling back against the dollar after news that British retail sales fell more than expected in February.
Data from the Office for National Statistics (ONS) showed sales fell 0.8% in February after a jump in prices, which was only partly due to the rise in VAT.
Steeper than the 0.6% drop predicted and following January's 1.9% rise, this sign of consumer weakness saw sterling weaken by half a cent to $1.615.
The pound had traded above $1.64 on Tuesday after a high inflation reading saw the money markets bringing forward their expectations of a rate rise.
But it fell back yesterday when UK growth forecasts were downgraded in George Osborne's Budget. GDP growth projections were lowered this year from 2.1% to 1.7%, and the 2012 forecast from 2.6% to 2.5%.
With consumer spending accounting for more than half of the economy, today's figures deliver a blow to hopes that GDP will achieve a strong recovery from the 0.6% contraction seen in the final quarter of 2010.
Hetal Mehta, of Daiwa Capital Markets, said: 'I can't say I'm surprised by the sharp fall in retail sales in February. The January bounceback - which has been toned down - was clearly in response to the the adverse weather conditions in December.
'Today's figures prove that underlying conditions in the retail sector are weak. Consumers are being buffeted by falling real wages and high unemployment, which are undermining consumer confidence.'
Although it follows a series of gloomy updates from retailers including Sainsbury's and John Lewis amid slowing sales growth in recent weeks, better results today from B&Q owner Kingfisher and Next provided evidence of cheer in the sector.
The ONS said there was downward pressure on all retailers in February, apart from those selling petrol and goods for cars. Household goods stores, which include DIY and electronics retailers, saw a 2.5% decline in volumes from January, with sales of music and video recording equipment down 12.6% on a year ago. Supermarkets and food retailers saw volumes decline 2.2% on the previous year, marking the 13th month of declining figures in a row. Non-store sales, which include internet and mail-order firms, also saw month-on-month sales volumes growth slow to 17.3% in February.
Vicky Redwood, senior UK economist at Capital Economics, said: 'This drop in sales volumes adds to evidence of a significant slowdown in consumer spending in the last few weeks.
'The level of sales has now fallen below the pre-snow level in November, suggesting an underlying slowdown is at work. What's more, the outlook for spending remains pretty bleak. Although the Chancellor provided some modest help for consumers yesterday, real incomes still look set to fall sharply this year.'
Alan Clarke, from BNP Paribas, took a more stoic line: 'It could have been even worse given the plunge in consumer confidence and higher inflation. Retail sales are going to be weak all year. We just have to get used to it.
Data from the Office for National Statistics (ONS) showed sales fell 0.8% in February after a jump in prices, which was only partly due to the rise in VAT.
Steeper than the 0.6% drop predicted and following January's 1.9% rise, this sign of consumer weakness saw sterling weaken by half a cent to $1.615.
The pound had traded above $1.64 on Tuesday after a high inflation reading saw the money markets bringing forward their expectations of a rate rise.
But it fell back yesterday when UK growth forecasts were downgraded in George Osborne's Budget. GDP growth projections were lowered this year from 2.1% to 1.7%, and the 2012 forecast from 2.6% to 2.5%.
With consumer spending accounting for more than half of the economy, today's figures deliver a blow to hopes that GDP will achieve a strong recovery from the 0.6% contraction seen in the final quarter of 2010.
Hetal Mehta, of Daiwa Capital Markets, said: 'I can't say I'm surprised by the sharp fall in retail sales in February. The January bounceback - which has been toned down - was clearly in response to the the adverse weather conditions in December.
'Today's figures prove that underlying conditions in the retail sector are weak. Consumers are being buffeted by falling real wages and high unemployment, which are undermining consumer confidence.'
Although it follows a series of gloomy updates from retailers including Sainsbury's and John Lewis amid slowing sales growth in recent weeks, better results today from B&Q owner Kingfisher and Next provided evidence of cheer in the sector.
The ONS said there was downward pressure on all retailers in February, apart from those selling petrol and goods for cars. Household goods stores, which include DIY and electronics retailers, saw a 2.5% decline in volumes from January, with sales of music and video recording equipment down 12.6% on a year ago. Supermarkets and food retailers saw volumes decline 2.2% on the previous year, marking the 13th month of declining figures in a row. Non-store sales, which include internet and mail-order firms, also saw month-on-month sales volumes growth slow to 17.3% in February.
Vicky Redwood, senior UK economist at Capital Economics, said: 'This drop in sales volumes adds to evidence of a significant slowdown in consumer spending in the last few weeks.
'The level of sales has now fallen below the pre-snow level in November, suggesting an underlying slowdown is at work. What's more, the outlook for spending remains pretty bleak. Although the Chancellor provided some modest help for consumers yesterday, real incomes still look set to fall sharply this year.'
Alan Clarke, from BNP Paribas, took a more stoic line: 'It could have been even worse given the plunge in consumer confidence and higher inflation. Retail sales are going to be weak all year. We just have to get used to it.
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