Sterling hits 2-week low vs dollar

LONDON (Reuters) - Sterling hit a two-week low versus the dollar after the biggest slump in UK retail sales in over two decades strengthened the case for the next move in interest rates to be a cut rather than a hike.

Retail sales slumped 3.9 percent in June, the sharpest monthly fall since the series began in 1986. That wiped up May's record 3.6 percent jump and brought three-month growth to its slowest since late last year.

The data sparked a reversal in sterling which had been cheered on Wednesday by news that Bank of England's arch hawk Timothy Besley had voted for a rate rise this month, boosting sterling, even as key dove David Blanchflower had as expected called for a cut from the current 5 percent.

"It was the largest decline in retail sales that we've seen on record, so it's not surprising that sterling's depreciated," Adarsh Sinha, currency strategist at Barclays Capital, although he cautioned against reading too much into the monthly data due to its high volatility.

"We are certainly not looking for rate hikes at all, the first thing that's going to happen is rate cuts and that'll happen next year," he added.

Sterling fell to a two-week low of $1.9817, before recovering slightly to stand 0.7 percent down on the day at $1.9845 at 2:32 p.m..

The euro rose 0.6 percent to 79.00 pence, recovering from a near-two month low of 78.39 set on Wednesday.

Signs from the High Street were also far from reassuring.

Kingfisher, Europe's biggest home improvements retailer and owner of the B&Q chain in the UK said sales at stores open over a year fell 1.5 percent in the second quarter of its financial year and that it was cautious about outlook.

JJB Sports reported a 1.2 percent fall in like-for-like sales in the 12 weeks to July 20.

There was also gloom in the financial sector, with the number of new jobseekers in the City of London 17 percent higher in June than a year ago, according to Morgan McKinley, which recruits for investment banks, hedge funds and asset managers.

A Reuters poll published on Wednesday showed analysts had revised down their UK growth forecasts from last month and gave a median 40 percent chance of Britain slipping into recession in the next 12 months.

(Reporting by Toni Vorobyova; Editing by Victoria Main)

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