2:00AM New York, 7:00PM London - UK retail sales rise 3.5% in May. Treasury proposes additional powers for the BOE and FSA.

Stocks in London fell fractionally after mixed reports showed increases in May retail sales and falling house prices for the same month.

Also the Bank of England Governor Mervyn King gave a gloomy outlook on the state of the economy, indicating that consumers will have to endure declining real purchasing power as authorities try to rein in on rising inflation.

Market sentiment

In London trading FTSE 100 index fell 0.84% or 48.5 at 5,708.40.

Of the FTSE 100 index stocks 31 gained, 70 declined, and 1 was unchanged. Anglo America led advancers in the index shares with a rise of 3.50% followed by Eurasian Natural increasing 3.34%.

Government to give BOE ad FSA new powers

The U.K Chancellor of the Exchequer Alistair Darling said in a speech and published on the Treasury’s Web site that the Government will be giving additional powers to the FSA to superintend over individual institutions and to the Bank of England for maintaining stability in the financial system.

Mr. Darling will set out the full details tomorrow in a letter to the Chairman of the Treasury Select Committee and in a consultation document.

“At the centre of our banking reform proposals are new powers for both the FSA and the Bank and improved procedures for coordination between them,” said Darling in a speech.

The FSA will remain the sole banking supervisor and government intends to provide a formal legal responsibility alongside the existing role in monetary policy.

Darling added: “The challenge for us is to ensure that the authorities can act quickly and decisively where necessary to support financial institutions. These proposals will give the authorities the full range of powers they need.”

John Gieve, one of the two deputy governors, will quit next year and Deputy Governor Rachel Lomax will also retire this year.

At the same dinner, Bank of England Governor Mervyn King said a slowdown in the economy this year will be necessary to dampen price and wage pressures in order to meet the inflation target.

King added that people will have to endure a loss a real purchasing power induced by the temporary slowing in the “growth of our real take home pay”.

Retail sales increase 3.5% in May

The Office of National Statistics reported on its Web site today that retail sales rose 1.8% in the quarter to May from the previous three months.

Retail sales in May increased 3.5% from a year ago, a sharpest decline in the two decades after a revised data in April of a fall of 0.3%. From a year ago sales rose 8.1% in May and in April rose revised 3.8% from the earlier estimate of 4.2% increase.

Sales volume for food stores rose 4.7% and non-food stores increased 9.9% and for the three-months to May sales volume rose 1.8% from the prior three months. Seasonally adjusted sales in the three months rose 5.4%.

Gainers & Losers

Anglo America led advancers in the FTSE 100 index shares with a rise of 3.50% followed by increases in Eurasian Natural of 3.34%, in ICAP Plc of 2.95%, in First Group Plc of 2.05%, and Centrica Plc of 2.04%.