Twin blow for the economy

A DOUBLE dose of dreadful news triggered fresh fears about the economy today. Retail sales suffered their biggest fall in April since Britain was mired in the early-1990s recession, according to the CBI.

Meanwhile, a closely watched barometer of the manufacturing sector revealed the first contraction for nearly two years.

The news will cement expectations that the Bank of England will leave interest rates at 4.75% for a ninth consecutive month next Monday as it adds to evidence that the economy is rapidly losing momentum.

The CBI said a net 14% of retailers reported lower sales in April than a year ago - the worst balance since July 1992. Trading was poor in most sectors, but chemists and furniture stores were hardest hit.

'This ongoing decline in sales is likely to reflect the recent fall in real disposable incomes, higher fuel and utility bills, reduced activity in the housing market and higher mortgage rates than a year ago,' said CBI chief economic adviser Ian McCafferty.

Meanwhile, the Chartered Institute of Purchasing and Supply's purchasing managers' index registered 49.5 in April, below the 50 no-change level and the first time factory activity has fallen since June 2003. Some firms blamed the collapse of MG Rover for falling orders, which led to a slowdown in production growth.

Economist John Butler at HSBC said: 'The question is whether this renewed soft patch is temporary or indicative of a more sustained slowdown. The latter would point to interest rates having peaked.'