By Claire West

Sterling fell nearly half a cent against the dollar in trading this morning, after weaker than expected UK retail sales data weighed on the pound. Sterling fell to $1.5536 from $1.5610 pre-release.

Retail sales were forecast to have risen by 0.3 per cent in August, but instead fell 0.5% month on month, the first decline since January. The Office for National Statistics also revised July’s sales growth down to 0.8% from 1.1%.

Mark Bolsom, Head of the UK Trading Desk at Travelex Global Business Payments says, “Going into a period of fiscal tightening, we would expect to see consumer demand winding down and it is worth remembering that July's retail sales figures were a lot stronger than expected. However, whilst this data doesn’t signal the start of a double dip recession, it certainly isn’t encouraging.”

In spite of the weaker figures, sterling eventually climbed back up to $1.5601 post-release. Bolsom says, “Now the markets have had time to digest the data, they are bidding the pound back up, which implies that it isn’t a concern for them just yet. But bearing in mind that the Coalition Government is set to announce cuts in government departments of up to 25 percent, it is probable that trading conditions will toughen over the next few months.