Retail sales cap for a busy week for UK economic data

It’s been a busy week for UK economic statistics and, as usual, the bag has been mixed. On Monday we got the GDP figures, which showed the UK economy grew 0.2% month-on-month in July, marking a recovery from the 0.6% decline of June, but was below market expectations for growth of 0.5%.

On an annual basis, GDP rose 2.3% in July, accelerating from the 1.9% increase in June.

“UK GDP for July is slightly weaker than expected at 0.2% month-on-month. However, the adjustment for the June bank holiday makes the numbers a bit difficult to read, and we think the Bank of England will take more into account tomorrow’s August jobs data to get a sense of how tight the UK labor market really is,” ING said.

Inflation – Glimmer of Hope?

On Wednesday, the ONS reported that the consumer price index fell to 9.9% after a plunge in petrol prices. As always with month-ahead data, it’s too early to say Team Transitory will have the final say – especially as shoppers and economists have noted a sharp rise in food price inflation. Food prices were more than 13% higher in August than a year ago, and this particularly affects “staple” foodstuffs such as milk and eggs.

A drop below 10% is welcome, but the UK still has one of the highest inflation rates in the developed world and the CPI is almost five times above the Bank’s target. England.

Energy bills are the most dreaded by consumers and a long winter is coming. Government intervention last week to freeze energy bills, a move that could cost the country more than £100billion, is expected to limit electricity and gas bill inflation. (The Office for National Statistics is currently calculating the likely effect of this move on inflation.) Some economists are already calling it – Capital Economics expects inflation to peak at 11.3% in November.

Retail sales have plummeted

UK retail sales fell in August due to cost of living pressures on consumers, figures from the Office for National Statistics showed on Friday.

Retail sales fell 1.6% month-on-month, much worse than the expected 0.5% drop, according to the consensus quoted by FXStreet. This reversed a 0.4% rise in July.

The ONS said the August data continued “a downward trend since the summer of 2021 following the lifting of restrictions on hospitality; in recent months, rising prices and the cost of living are also affecting sales volumes”.

All major sectors – food, non-food, non-store distribution and food – fell during the month, which had not happened since July 2021, when all Covid restrictions on hospitality were lifted.

Grocery store sales volume fell 0.8% in August and was 1.4% below pre-Covid levels. The ONS noted that retailers have reported an increase in food prices.

On an annual basis, UK retail sales fell 5.4% in August, deepening the 3.2% drop recorded in July.

Retail sales figures for September will show the impact of the Queen’s death on official statistics, especially from the September 19 bank holiday. Whether we will see a change in consumer behavior remains to be seen.

An economist would expect the event to have dampened demand, except for shops selling royal memorabilia and newspapers touting special commemorative editions. Will there be a boost to London’s shops and restaurants from tourists visiting the capital to pay their respects to the late monarch? Certainly, visitors from the United States will have more money to spend – a year ago the pound was worth $1.38 and is now worth $1.14, the lowest level since the mid-1980s (a multi-decade low was reached in March 1985 of $1.07, a close shave with parity).

Coming soon – Budget and Bank of England

The week that starts in September starts with a holiday, but then it’s full steam ahead. The Bank of England will deliver its final interest rate decision on Thursday and is expected to raise interest rates by 50 basis points. Here’s a recap of what the Bank said in August as it raised the base rate from 1.25% to 1.75%. Last month it predicted an inflation peak of 13% but that was before the government intervened on energy bills (for the record the ONS calculates the impact on inflation).

And to top it off, the government is planning an “emergency” budget for Friday. Businesses and households expect new Chancellor Kwasi Kwarteng to take action to ease the cost of living crisis. “Growth at all costs” is the mantra of the new Truss regime, which starts in interventionist mode. The sense of national crisis was growing before the Queen’s death and while this seismic event pressed the pause button – but business will continue as usual after the state funeral.

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