LONDON (ShareCast) - May’s unexpected surge in retail sales was more than wiped out a month later as total sales volume dropped 3.9%, the biggest decline since records began 22 years ago.

The size of the tumble caught out analysts who had predicted a 2.6% fall in June to follow the surprise 3.5% climb in May reported by the Office for National Statistics (ONS).

Food stores reported a 3.6% slide in sales, while sales volume for predominantly non-food stores decreased by 4.5%, both the worst ever recorded.

The previous month’s figures sparked renewed debate about how the ONS compiles its figures as recent statements from retailers had been mostly gloomy.

Annual growth is now running at 2.2%, with sales in the three months to June slowing to 0.6% versus s 1.7% increase in the first quarter.

Experts now think interest rates are unlikely to rise in the near future and could begin to fall by the end of 2008 or early next year.

Yesterday’s minutes from the Bank of England’s last rate setting meeting revealed that policymakers were involved in a three-way tug.

Timothy Besley became the first Monetary Policy Committee (MPC) member to call for higher borrowing costs in over a year, while perennial dove David Blanchflower voted for a quarter point cut.

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