Pound to Stay Heavy as Retail Sales Confirm Consumers Facing Significant Pressures
- Written by: Gary Howes
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Image © Adobe Images
The British Pound is set to remain under pressure as the UK economy faces significant headwinds, as confirmed by the latest retail sales figures.
UK retail sales fell 0.1% month-on-month in June, which is stronger than the -0.3% reading the market was looking for and an improvement of the -0.8% recorded in May.
Core retail sales rose 0.4% said the ONS, beating expectations for -0.4%.
The figures mean sales were down 5.8% in the year to June, coming in softer than the -5.3% the market was anticipating.
"The UK consumer remains in a dire state. Small bump higher in core UK retail sales but not good enough. All food related around Jubilee weekend. Spending across other items fell. What's a red flag is online spending falling sharply," says Viraj Patel, Macro Strategist at Vanda Research.
Patel says the data underscores his belief the Bank of England will opt for a 25 basis point hike in August.
Such a move would prove disappointing for the market which has moved to price in a 50bp hike.
Therefore, such disappointment could weigh on the Pound.
Following the release of UK retail sales figures the Pound to Euro exchange rate was trading 1.1740, flat on the day, meaning bank accounts were quoting in the region of 1.15 for euro payments and FX specialist providers 1.17.
The Pound to Dollar exchange rate was back below 1.20 at 1.1984, giving bank account dollar payment quotes at around 1.1744 and FX specialist quotes at 1.1940.
UK consumers are set to remain under pressure in the face of surging inflation, which rose 9.4% year-on-year in June.
The impact of the rising prices is encapsulated in the following chart presented by the ONS, showing that although the value of retail sales is trending higher, volumes are lower:
The ONS data confirms a pick up in activity around the time of the Silver Jubilee celebrations thanks to "people stocking up on sausages rolls, cakes and alcohol for Jubilee street parties," says Paul Dales, Chief UK Economist at Capital Economics.
"Even so, we think the surge in inflation and resulting big fall in real household disposable incomes means that a recession is now inevitable," says Dales.
The British Pound will likely remain under pressure as long as sentiment towards the UK economic outlook remains challenged.
This data suggesting the all important engine of the UK economy - consumption - is faltering and further weakness for the currency therefore likely lies ahead, particularly against the Dollar.
