UPDATE 3-UK retail sales fall as economy weakens

* Retail sales unexpectedly dip in Sept, 2nd fall in a row

* Weaker than expected data point to economic slowdown

* Sterling falls on expectations of more BoE stimulus

* Consumers seen retrenching further as deficit cuts bite

(Adds opinion poll, IFS comments)

By Matt Falloon and Peter Griffiths

LONDON, Oct 21 (BestGrowthStock) – British retail sales fell for the
second month in a row in September, reinforcing evidence of an
economic slowdown as consumers steel themselves for savage cuts
in government spending and tax rises.

The weaker than expected figures, capping the longest
sustained fall since the turn of the year, pushed sterling lower
against the dollar and euro a day after the government announced
details of 81 billion pounds ($128 billion) of spending cuts.

Growth in Britain’s economy, which had bounced back strongly
this year from an 18-month recession, is expected to slow as the
government tackles a record budget deficit, increasing the
chances that more stimulus from the Bank of England will be
needed.

A slight improvement in lending to British firms seen in
August is not expected to last and the housing market is also
weakening, with mortgage approvals by big UK lenders down in
September for a fourth month in row.

“People’s confidence is being sapped by a double dip in the
housing market and fears over jobs or a pay freeze,” said Alan
Clarke, an economist at BNP Paribas. “This contributes another
baby step towards a second round of quantitative easing.”

The initial estimate of GDP for the third quarter will be
published on Tuesday Oct 26.

Conservative finance minister George Osborne, dismissing
fears on Thursday that his austerity drive is too harsh,
repeated his government’s mantra that monetary policy can take
up the strain as deficit cuts bite. [ID:nLDE69K0AX]

One BoE policymaker, Adam Posen, has already called for more
stimulus and there are signs others could be edging towards his
view. BoE rate-setter David Miles said on Thursday there was
still scope to help the economy if needed. [ID:nLAJ002426]

The central bank has so far slashed interest rates to a
record low of 0.5 percent and spent 200 billion pounds of newly
created money on assets to boost growth.

Official forecasts suggest half a million jobs are set to
disappear from the public sector due to the cuts but opposition
politicians and some economists say the job losses could soar
beyond that and drive the economy back into recession.

RETAILERS SUFFER

The Institute for Fiscal Studies think tank said the deficit
plan — including the biggest cuts to public spending over a
four-year period since World War Two — would hit the poor
hardest.

A KPMG/Ipsos MORI poll on Thursday showed six out of 10
Britons thought it was right to cut public spending, although
more than two thirds said it would be better to slow down the
pace of the planned deficit reduction.

For now, the outlook is undeniably gloomy. BoE Governor
Mervyn King says Britain is in for a “sober” decade and there
are broad signs that consumer activity is already on the wane.

The Office for National Statistics said retail sales volumes
fell 0.2 percent in September, confounding expectations for a
rise of 0.4 percent. Clothing sales suffered from the sharpest
sector inflation since 1994 and petrol sales were also weak.

Budget fashion retailer Matalan said on Wednesday it
expected trading conditions to remain “very challenging” and
Britain’s top household goods retailer, Home Retail (HOME.L: ),
posted a 23 percent fall in first-half profit.

On Thursday, department store Debenhams (DEB.L: ) said the
government’s deficit reduction plan, which also includes a rise
in value-added tax next year, would affect all retailers.

The Conservative-Liberal Democrat coalition government is
hoping a surge in private sector activity will take up the slack
as the public sector shrinks.

However, economists warn that without steady flows of
consumer spending and bank loans — which have failed to pick up
since the global credit crisis — the private sector will
struggle to drive the recovery.

Separate figures on Thursday from the BoE showed lending to
businesses rose in August for the first time since February but
initial data for September indicated that rise was a one-off.
[ID:nLDE69K10M]

“Persistent tight credit conditions continue to pose a
serious handicap to economic activity,” said Howard Archer, an
economist at Global Insight. “As such, the report maintains
pressure on the Bank of England to revive quantitative easing.”

(Editing by Hugh Lawson, John Stonestreet)

UPDATE 3-UK retail sales fall as economy weakens