OTTAWA Canadian retail sales fell by 0.1% in August from July and look set to stay flat in September, Statistics Canada said on Friday, cementing expectations that the Bank of Canada will keep rates on hold next week.

Analysts polled by Reuters had forecast a 0.3% decline from July. Growth in Canada has stalled, in part due to 10 rate hikes by the central bank since March 2022 as it tries to bring stubbornly high inflation back down to its 2% target.

Sales fell in six of the nine sub-sectors in August, led by decreases at motor vehicle and parts dealers, and analysts said the 0.7% decline in overall volume was significant.

"The soft report is yet one more reason to expect the Bank of Canada to keep policy rates on hold," BMO Capital Markets economist Shelly Kaushik said in a note.

The Bank of Canada will make a rate announcement and release its latest forecasts on Oct. 25. Governor Tiff Macklem last week said the bank would not be predicting a serious recession.

Desjardins analyst Tiago Figueiredo said third quarter annualized growth was likely to be just 0.2%, compared to the 1.5% the bank was predicting in July.

"The cool pace of sales growth in September also suggests a weak handoff for the fourth quarter ... this data reaffirms our view that the Bank of Canada is done hiking rates," he said.

Although 12% of retailers reported their business in August had been hit by a port strike in British Columbia, CIBC Economics analyst Katherine Judge said the flat prediction for September indicated weak consumer spending.

Money markets trimmed bets for a rate hike after the data. They now see a 15% chance for an increase next week, slightly down from 16% before the data release.

(Reporting by David Ljunggren; Editing by Andrew Cawthorne)