HOPES that interest rates in the UK have peaked were given a boost yesterday by clear evidence that retail sales growth had slowed down in response to the tightening of monetary policy and the reduction in mortgage interest tax relief.

Bank of England Governor Eddie George told the House of Commons Treasury Select Committee that the data showed ''very weak'' growth in spending, and the figures pointed to the slowdown in domestic demand that the Bank had been seeking.

Sterling, which has gone into retreat since the end of March, fell back further to a six-and-a-half month low of around DM2.8690.

The Office for National Statistics said the volume of retail sales rose by just 0.1% in April, compared with City expectations of a 0.4% increase, and revised growth in March from 0.3% to 0.2%. Year-on-year growth remained unchanged at 4.2%.

Retail sales figures are a volatile series. Growth of 1.9% in January (after a sluggish Christmas) was followed by a decline of 1.2% in February.

In the latest three months, sales were just 0.2% higher than in the previous three months and 4.3% higher than in the same three months a year ago.

Poor weather at Easter may have depressed the April figure. Clothing and footwear sales were 1.5% lower, taking the annual growth rate into negative territory. By contrast, household goods sales were very strong, rising by 2.3% in April for a 12.6% increase year-on-year.

Overall non-food sales were flat in the latest three months, though 4.3% higher than in the same three months a year ago. But food sales rose by 0.6%, for an increase of 4.5% on the same three months of last year.

Adam Cole, UK economist at HSBC Securities, said: ''The retail sales data were significantly softer than expected and there is little doubt that the underlying trend is slowing.

''However, with much of April's softness down to a big drop in clothing sales, which was almost certainly weather-related, it would be unwise to read too much into a single month's data.

''Elsewhere sales of household goods were very strong, and are likely to remain so, confirming that there is still life in consumer spending yet. Overall the data are consistent with the economy slowing. But this is a necessary, not sufficient, reason for rates to start falling.''

But Francesca Massone at Goldman Sachs said: ''Although the quarter-on-quarter annualised rate seems to suggest a deceleration in the underlying trend of growth in retail sales, this will probably prove temporary. The April data were affected by the very poor weather conditions during the Easter period.

''The April retail sales numbers are probably sufficiently weak to keep interest rates on hold for the moment, but we remain of the opinion that it is premature to be confident that interest rates have peaked.''

The sales data were marred by stronger-than-expected money supply figures from the Bank of England. The broad measure of the money supply, M4, rose by a seasonally adjusted 0.9% in April, taking the year-on-year increase up from 9.7% in March to 10.3% last month.

Figures from the Building Societies' Association showed net advances amounted to #747m in April compared to #687m in March, while the savings inflow jumped to #663m from #271m in March.

Adrian Coles, the association's director general, said: ''April's net advances - the best measure of new lending - are at their highest level for 1998 and only just down on this time last year when the building society sector was much larger.

''The underlying recovery in the housing market is continuing at a gentle, but sustainable, rate. With the prospect of further interest rate rises abating, there is every indication that this steady progress will continue throughout 1998.

''Building societies continue to perform very well in the savings market. A year-on-year comparison shows that societies attracted a higher level of savings in April 1998 than the much larger sector did in April 1997 or 1996.

''Consumers are attracted to the competitive rates, and safety offered by building society savings products. This is in contrast to unease about the price of equities and the continuing lack of competition from National Savings.''

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