Slower UK retail sales check rise of sterling

THE strong run of sterling on the foreign exchanges has halted suddenly after UK retail sales figures showed a sharp slowdown last month. The figures suggest that higher interest rates to curb growth in consumer spending on credit may still be some time off.

In Dublin the pound recovered 0.3p to close at 101p sterling. However, the Irish currency lost ground against the strengthening deutschmark, losing more than a pfennig to DM2.4566.

The pound's fall against the German currency was due both to it moving with sterling and also to renewed buying of the deutschmark.

The latest developments on the market will be welcomed by the Central Bank, which has been selling the pound in recent weeks partly to try to avoid a revaluation of the green pound.

The Irish currency's strength against the deutschmark and the other ERM currencies had threatened to trigger such a realignment. However, the difficulty for the bank had been that sterling renewed strength was at the same time pushing the pound to its lowest level of 18 months against.

the British currency.

Analysts have warned that further falls in the pound against Sterling could push up inflation by increasing import prices.

Dealers said it was not clear yet whether yesterday's reversal of the recent trends on the currency markets would be sustained. In one of the sharpest sell offs since sterling began its bull run nearly three months ago, the British currency shed 1.66 pfennigs to DM2.432 and also weakened against other European currencies.

Sterling's decline was cushioned to some extent by heavy switching out of the weakening US dollar ahead of the presidential election - and the British currency closed fractionally higher against the dollar at $1.5977.

The British currency has advanced almost 6 per cent since early autumn, mainly buoyed by prospects of strengthening economic activity driven by a consumer spending boom fuelled by the cheap money policies of the Chancellor, Mr Kenneth Clarke.

Sterling's rise has pushed the Irish currency to as law as sterling. The pound has also moved higher in sterling's wake against currencies such as the deutschmark.

In Britain, while the omens still look good for increased consumer spending on credit, yesterday's retail sales figures will place question marks over the strength and timing of the predicted sales liftoff. Retail sales volumes last month were 3.5 per cent up on the figures for September last year.

But the rate of sales growth was markedly less than the strong 4.3 per cent pace in August and slightly below the underlying trend over the previous three months.

Comments by the Bundesbank's chief economist, Mr Otmar Issing, helped to underpin the mark, which hit its highest level on foreign exchanges in more than 3 1/2 years. He implied, in an interview with the ZDF television channel, that German interest rates would not be cut further.

Monetary policy had done its job and growth of the money supply was "rather too strong and, on the other hand, interest rates practised by the central bank are at a historic low point", he said.

Consequently a reduction of rates was "neither to be expected nor necessary".