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Retail sales fell more than expected in September as a separate survey showed British consumers becoming increasingly worried about the economy.
Britain’s shoppers are buying less and worrying more, according to two reports that have delivered a double dose of bad news for the economy. Retail sales fell further than expected in September, while consumer confidence suffered its sharpest monthly decline since the early days of the pandemic. The pound, which has been enjoying a stronger week against the euro, now has some awkward domestic figures to contend with.
Official figures released this morning showed retail sales volumes falling 0.4% in September, twice the decline economists had expected. August’s growth was revised upwards to 0.7%, and sales still grew over the third quarter. Supermarkets and clothing retailers had a weaker month, although unusually warm weather appears to have discouraged shoppers from buying their autumn and winter collections.
Consumer confidence offered a more troubling picture. The GfK index plunged 11 points to -24 in October, its biggest monthly fall since April 2020. Expectations for the wider economy deteriorated sharply, as did willingness to make major purchases. Higher living costs and uncertainty surrounding next Wednesday’s Budget have done little to lift the mood.
Sterling has so far benefited from problems elsewhere, particularly France, where government borrowing costs reached their highest since 2002 yesterday. The gap between French and German bond yields widened to levels last seen during the eurozone debt crisis, while concerns spread to other heavily indebted European countries. Eurozone consumer confidence also fell further than expected.
There were plenty of other reasons for investors to be nervous. Oil climbed above $113 a barrel amid renewed threats to Middle Eastern supplies, while American technology shares suffered another sharp sell-off as investors questioned the enormous sums being spent on artificial intelligence. The Japanese yen and Swiss franc attracted buyers looking for safer places to put their money.
It leaves a complicated picture heading into the weekend. Britain has weakening consumer demand but stubborn inflation, Europe is wrestling with debt worries and the United States faces growing questions about its technology boom. With the Federal Reserve and UK Budget both due on Wednesday, followed by the European Central Bank on Thursday, next week promises little respite.
GBP: Consumers put the brakes on
Sterling has been outperforming the euro this week, supported by expectations of higher Bank of England interest rates and growing concerns about European government debt. This morning's figures offer a reminder of the other side of that equation. Retail sales fell 0.4% in September and consumer confidence has since deteriorated sharply. The Bank must weigh weaker spending against persistent inflation when it meets in November, while Wednesday's Budget brings another potential test for the pound.GBP/USD: the past year
EUR: French debt worries spread
The euro remains under pressure as investors grow increasingly nervous about government borrowing across the currency bloc. French ten-year bond yields climbed above 5.14% yesterday, while borrowing costs in several neighbouring countries also came under pressure. Moody's is due to review France's credit rating today, with the agency already holding a negative outlook. Business activity figures from France, Germany and the wider eurozone are also due this morning, ahead of Thursday's ECB decision.GBP/EUR: the past year
USD: Dollar struggles as yen gains
The dollar's performance was mixed yesterday despite another resilient US employment report. New unemployment claims fell to 194,000 last week, suggesting businesses remain reluctant to cut jobs. But a 2.6% slide in the Nasdaq sent investors towards safer assets, including the yen and Swiss franc. Japanese inflation also accelerated to 2.1% in September, adding to expectations of further Bank of Japan tightening. The dollar held up against the euro but lost ground to both traditional safe-haven currencies.USD/GBP: the past year
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