The Office for National Statistics’ (ONS) Retail Sales Index for March showed that despite a large drop of 0.4 per cent for the month of March, retail sales had increased by an unexpected two per cent over the first quarter of 2008.

Experts believe that these figures will cause confusion for the Bank of England Monetary Policy Committee (MPC) when it comes to May’s meeting, and may hinder chances of a further interest rate cut.

Before these statistics were announced, it was generally believed that retail sales would have fallen for the first quarter of 2008 as a result of the credit crunch.

Since the credit crisis began last August as a result of US sub-prime lending, it has been widely reported that UK households are finding it increasingly hard to make ends meet.

Food and fuel bills have risen more than ever before and mortgage rates and fees continue to stretch home owners’ budgets. As a result, the recent Financial Reality Index from Alliance Trust has shown that the average UK household’s disposable income is at its lowest since the study began over ten years ago.

Prior to the ONS’ retail sales statistics, it was speculated that the MPC would continue to cut the Bank rate in an attempt to alleviate the financial pressure thought to be affecting Britons. However, a rise in retail sales indicates that consumers are continuing to spend, and that their disposable income is not as low as previously thought, consequently reducing the need for a further Bank rate cut.

Earlier this month, executive director and chief economist of the Bank of England, Charles Bean referred to the current economical situation as walking a tightrope.

The MPC faces tough decisions as it attempts to juggle a balancing act between interest rates and inflation and it is thought that these latest statistics will make this harder.

© Fair Investment Company Ltd