Sterling falls across the board after dismal UK retail sales data

[notiCIas]

LONDON (AFX) - Sterling fell across the board as markets reacted by selling the UK currency after dismal retail sales numbers over the crucial Christmas period were revealed

At 9.49 am, the pound was down to 1.8642 usd from 1.8711 usd before the news, meanwhile, the euro rose to 0.6971 stg from 0.6943 stg. "The market reacted in obvious knee jerk fashion to the news" said Steve Pearson at HBOS

But he warned against interpreting too much from the data, adding that it should not unduly affect the outlook for UK interest rates or the direction of the pound

"It is unclear how much the data reflects the underlying reality," he said

For one, December's data has to be seen together with the numbers for January before coming to any conclusion, especially as it has become ever more popular for consumers to defer spending until the post Christmas sales period, Pearson noted. Secondly, Pearson highlighted that anecdotal evidence from the retail sector has been mixed for the Christmas period. Retailers such as Tesco PLC and Monsoon PLC reported that sales were up but others such as Marks & Spencer Group PLC and Woolworths Group PLC said sales were weak

Markets were bracing themselves for an unexpected number after Bank of England governor Mervyn King last night urged the markets not to read too much in today's retail sales data given the scale of the seasonal adjustments

In a speech to business leaders, King said it would be "foolish to put too much weight" on one month's figures, especially over Christmas. The "true meaning" of the Christmas story will only emerge at Easter, or maybe after, he said

King, who had advance notice of the data, stressed that the rate setting Monetary Policy Committee considers longer-term trends. Today's data showed that retailers suffered their worst Christmas for nearly a quarter of a century

The office of National Statistics said retail sales in December fell 1.0 pct on the previous month, against the 0.6 pct increased recorded in November and expectations of a modest increase of 0.3 pct

A spokesman for the statistics office said that was the worst December performance since 1981, when sales dropped by 1.7 pct in the midst of a harsh recession, and the biggest monthly decline since January 2003

On a year-on-year basis, retail sales growth slipped to 3.2 pct from November's 5.9 pct and expectations of a more moderate 5.6 pct increase

December sales are typically 20 pct higher than in November