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Pound tumbles after fall in retail sales

Source: Reuters - Thu 2th Jul 2009

The pound fell to one-week lows against the dollar and euro on Thursday after data showed retail sales unexpectedly fell, raising doubts about economic recovery.

The pound had surged sharply in recent weeks along with some other currencies on optimism over the global growth outlook. But investors are reassessing such views as economic data have been mixed.

Retail sales fell 0.6 percent in May from the previous month, against a forecast of a 0.4 percent gain, data showed on Thursday. That left them 1.6 percent lower than in the same month a year ago.

"We had suspected that the market was being overly optimistic" said James Knightley, economist at ING Financial Markets.

"The year-on-year rate of sales growth is now down ... and we suspect that it has further to fall given that rising unemployment and falling wage growth are hurting spending power" he added.

By 2:57 p.m., sterling was down 0.6 percent at $1.6297 after falling to $1.6187, its lowest since June 9. That was far off from a high of $1.6664 hit on June 3.

The euro was up 0.8 percent to 85.74 pence after hitting a high of 86.03 pence. It had hit a 6-month low of 84.19 pence earlier in the week.

Bank Governor Mervyn King said late on Wednesday there were some signs the British economy was starting to stabilise, but it was too early to remove the huge degree of stimulus from the economy. 

Minutes of policymakers' June 3 and 4 meeting released earlier on Wednesday showed they unanimously voted to keep rates on hold and maintain the Bank's 125 billion pound quantitative easing programme, because they judged the better data over the last month had not changed the previous month's dire outlook.

Separate figures on Thursday showed Britain's public finances deteriorated more than expected last month, with public sector net borrowing rising to a record high close to 20 billion pounds.

Meanwhile, a Bank of England report showed lending to British businesses fell by its biggest amount in nearly nine years in April in a sign the credit crunch is still hitting companies hard.

Net lending to private non-financial corporations fell by 5.4 billion pounds in April, the biggest fall since June 2000.

The Confederation of British Industry said its monthly industrial trends survey's total order book balance rose to -51 this month from -56 in May, below forecasts for a reading of -45.

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