UK Retail sales for July and inflation data is set to go in differing directions next week as retail sales slow despite recent gains due to World Cup and inflation falls amidst lower goods circulation - although volatile food and fuel prices may affect it.

The two are a warning of possible deflation coming as inflation and retail sales both set to fall together for a period of time to come - which the BoE must balance:

"The significant risks to inflation, in both directions, continue to present a substantial challenge for monetary policy." say the Bank of England in this month's inflation report, "Persistent spare capacity is likely to bear down on inflation throughout the next three years, and may push it significantly below the target later in the forecast period." it added.

"It will take many years before bank balance sheets and fiscal positions return to anything like normal. In the meantime, they will act as headwinds to the recovery." added the bank's Governor Mervyn King at this week's Inflation Report.

Meanwhile, focus will remain on Bank of England minutes to be released next week outlining their interest rate policy.

Last month the committee voted 7-1 against raising them.

JOHN LEWIS SALES

Elsewhere today, John Lewis reported a like-for-like sales increase of 15.5 percent to 52.5 million pounds in the week to August 7.

The news sparked hopes of a surge for the company although 'thirty' spending over the coming months may moderate it:

"The first week of the half year, and a vibrant performance to get us under way as we generated sales 15.5 percent ahead of last year's mark. Branch teams reported significant footfall, particularly on Saturday," said Chris Hooper, John Lewis' head of operational support.

Retail sales overall are continuing to slow - after a World Cup boost. According to the BRC which released it's figures for July this week the 'talk of spending cuts' is unsettling customers, whilst sales growth for food retailers and non-food shoppers continuing to fall in Nielsen's shop price inflation report.

GDP Bank of England