British retail sales rose more than expected and across a wide range of categories last month as stores cut prices after a sharp fall in business in December. Retail sales rose 0.9 percent in January after a revised 1.1 percent monthly fall in December, initially reported as 1.0 percent decline, the Office for National Statistics said on Thursday. January's gain, which comes at a time when many retailers generate a large share of their yearly sales, was the biggest since September and came slightly ahead of the 0.8 percent rise which had been expectated.

While the figures showed a near reversal of December's sharp fall, they did little to alter the outlook for steady interest rates as Bank of England Governor Mervyn King has warned a clearer picture on retail sales will not emerge for another few months.

"The rise ... confirms the wisdom of Mervyn King's remarks last month when he said that markets should not infer too much from one month's numbers," said Gavin Redknap, economist at Standard Chartered.

Gilts and short sterling interest rate futures fell after the figures were released but the response was relatively mild. The pound firmed against the dollar.

Retail sales make up only about 35 percent of overall consumer spending, the ONS said. The BoE said on Wednesday that a potential weakening of consumer spending was the greatest downside risk to their latest set of economic forecasts.

The overall gain in sales last month was driven by sales at non-specialised stores, such as department stores, which recorded a hefty 2.7 percent rise. Other non-food stores, such as bookshops, mobile phone stores, camera stores, computer shops, toy shops and sports stores saw a 0.9 percent fall on the month although the ONS said it could not be more specific on which of those sub-categories showed more weakness.

Copyright Reuters, 2005