Pound rises after retail sales fall less than expected

By Naomi Tajitsu

LONDON (Reuters) - The pound rose on Thursday after a smaller-than-expected fall in retail sales and factory orders suggested that the Bank of England may put off cutting interest rates in coming months as it tackles rising inflation risks.

Retail sales fell 0.2 percent in April from March, clocking a second monthly slide but coming in slightly stronger than forecasts for a 0.5 percent fall. The previous month's figures were also revised to show a smaller fall.

A manufacturing trends poll put the balance of UK factory orders at -10 in May, slightly stronger than forecasts for -12 but still falling for the second month in a row.

While the sales data showed that sluggish consumer spending may continue to batter the economy, analysts said such weakness may not yet warrant a rate cut from the current 5 percent, particularly given an expected rise in inflation this year.

The industrial trends survey also showed that firms expect to raise prices at the fastest rate in 13 years.

"People had been looking for quite a sharp fall based on the numbers we've seen for consumer confidence and other indicators. It (the fall) was a lot less than expected ... this show that there is really no need for them to cut interest rates," said Jeavon Lolay, economist at Lloyds TSB Financial Markets.

"Inflation is a bigger concern and I think these data confirm that."

Still, the fall in sales had been limited by a rush to buy new, big-name video game releases, and some analysts said that purchasing power would likely erode in coming months, especially as the housing market struggles due to the credit crisis.