Following the UK CPI and labor figures published earlier this week, the Office for National Statistics released another report today on retail sales for the month of July. This showed household spending growing at a slower pace compared to a year before. As a result, sterling dipped into losses against its US and eurozone counterparts.
Looking at the numbers, UK retail sales pulled back in July after a strong rally in the previous month as British consumers cut their purchases on most products, with food items being an exception. On a yearly basis, household spending picked up by 1.3%, while analysts anticipated a growth of 1.4%. This was below the 2.8% recorded in June. Month-on-month, retail sales growth remained unchanged at 0.3%, exceeding the 0.2% expected. Moreover, in the three months to July, the figure stood at 1.8%, posting the weakest expansion since November 2013.
Excluding auto sales and fuel, retail sales were up by 1.5% year-on-year, rising above the forecast of 1.3%. Yet, this was lower than the 2.8% observed in June (downwardly revised from 3.0%). On a monthly basis, household spending slipped from 0.6% to 0.5%, above the 0.2% anticipated by analysts.
The above statistics might suggest inflationary pressures are taking a toll on household spending and consequently signal that GDP growth is less likely to show significant improvement in the foreseeable future. Note that, inflation has more than quadrupled over the last twelve months, whilst BOE policymakers project the rate to increase even further, peaking at 3.0% annually in October. Furthermore, data on Wednesday showed that despite average weekly earnings for the three months to July strengthening, annual growth in real wages for the second quarter was down by 0.5%, recording the biggest fall in three years.
Turning to the forex markets, sterling reversed yesterday’s gains versus the dollar in the wake of softer household spending. Pound/dollar fell by 0.25% to a session low of 1.2856 from 1.2888 prior the data release but managed to climb to 1.2870 during afternoon European trading hours.Euro/pound initially went up by 0.20% to 0.9109 but then declined to 0.9085 after the ECB meeting minutes revealed policymakers’ concerns over a rising euro.
