Pound falls to 37-year low as UK retail sales fall sharply, highlighting recession risk


By Bloomberg STI (Update)

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The 1.6% drop was more than three times the drop predicted by economists and reflects pressure on households from soaring energy bills and inflation near a 40-year high. All retail categories saw their sales decline for the first time since July 2021.

UK retail sales fell at the fastest pace in eight months in August as the worsening cost of living crisis and plummeting confidence forced consumers to cut back on spending.

The 1.6% drop was more than three times the drop predicted by economists and reflects pressure on households from soaring energy bills and inflation near a 40-year high. All retail categories saw their sales decline for the first time since July 2021.

The pound extended its decline after the release and was down 0.4% at $1.14 at 9:21 a.m.

The government is responding to the crisis by announcing a £100bn ($114bn) grant package to prevent gas and electricity bills from rising again over the winter.

That may be enough to stave off a recession, but consumers are still facing months of hardship amid soaring prices for everything from food to clothes. Real wages are falling and the pressure has pushed consumer confidence to a record low.

It also meant that many households had to buy fewer discretionary items to afford the essentials.

John Lewis Partnership Plc, a UK retail watchdog, said this week its first-half loss had more than tripled from a year earlier, and blamed the “unprecedented cost of living crisis”. THG Plc, the online shopping empire, said profits would run out of guidance.

What Bloomberg Economics says

“We expect consumer spending to come under more pressure in the coming months given the relentless pressure on incomes. Discretionary buying will come under particular pressure and consumers are likely to turn to cheaper brands when possible when shopping for food.

August’s tumble in retail sales left sales down 5.4% from a year earlier, a fifth consecutive year-over-year decline. Excluding the early days of the Covid pandemic, such a bad streak has not been seen on Britain’s High Street for over a decade.

UK retail stocks have plunged more than 12% in the past month, making it one of the worst performing sectors. The FTSE 350 index as a whole fell 4.4%.

Retail sales are almost certain to dampen the economy in the third quarter. Sales will fall over the period unless September sees a 3.1% increase.

The fate of consumers is unlikely to sway the Bank of England, which is expected to continue raising interest rates, including a possible 75 basis point hike next week, in a bid to stave off a wage spiral. -price.


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