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U.K. data hint at lower rates
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January 20, 1999: 7:15 a.m. ET
Retail sales data and BoE minutes suggest interest rates will fall further
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LONDON (CNNfn) - U.K. shoppers kept their hands in their pockets over the Christmas period, according to data released Wednesday, increasing the likelihood of further cuts in interest rates.
The minutes from the Bank of England's Monetary Policy Committee meeting in January indicated also that further rate reductions are likely. Seven of the committee's nine members voted in favor of the 25 basis point reduction, with one favoring a 50 basis point cut and another saying rates should have been left unchanged.
Retail sales fell 0.9 percent in December from November, although inflation data released Tuesday was surprisingly strong.
"Retailers are playing a cat and mouse game," said Jonathan Loynes, U.K. economist at HSBC, "they try to build their margins back up, but then have to reverse price increases."
Analysts say retailers slashed prices in December as they saw that sales were poor, but the price falls came after the inflation data, taken on December 15, was collated.
"The MPC has acted early and aggressively," said Loynes, in cutting rates by 125 basis points in the last four months. "The soft landing scenario is still on track," he maintained, and he expects short-term rates to be lowered further to 5 percent (they are currently 6 percent) by the summer.
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