After data revealed that UK retail sales plunged significantly in August as the rise in the cost of living continued to affect consumers, the pound dropped to a fresh 37-year low against the US dollar.
The 1.6% larger-than-anticipated decline in sales volumes raised further worries about the status of the economy.
August saw a decline in sales across all retail segments as consumers made spending cuts in response to price increases.
According to one researcher, the data proved that the UK is already in a recession.
Following the publication of the retail sales data, the sterling dropped more than 1% versus the dollar, reaching a low of $1.1351 for the first time since 1985. Later, the pound recovered to rise above $1.14.
For the majority of the year, the pound has been losing value relative to the dollar, in part because of the dollar’s rise. Because of the weak pound, British tourists will find that their money does not go as far.
This occurs at a time when UK inflation, or the rate at which prices increase, is at a level that is over 40 years high, albeit declining from 10.1% in July to 9.9%.
According to the Bank of England, the UK will experience a recession at the end of this year, and interest rates will likely continue to rise to stop inflation.
This occurs at a time when UK inflation, or the rate at which prices increase, is at a level that is over 40 years high, albeit declining from 10.1% in July to 9.9%.
According to the Bank of England, the UK will experience a recession at the end of this year, and interest rates will likely continue to rise to stop inflation.
In the upcoming months, as the cost of living problem intensifies, Ms. Cross predicted that retail sales will likely continue to face challenges.
But even so, the Bank of England will need to rapidly boost interest rates.
Households have had to make spending cuts as a result of price increases and impending increases in energy costs in October.
To assist citizens with their energy expenses, the government last week established the Energy Price Guarantee. A typical household’s annual energy costs will be capped at £2,500 for two years as a result of the support.
Before the government stepped in, annual energy bills were projected to soar to £3,549 and even higher in 2023.
Capital Economics’ Ms. Cross predicted that any recession will be “smaller and shorter” than originally anticipated due to the intervention.
The government help “could reduce both the income pressure and raise customers’ sentiment, suggesting the prognosis for shops isn’t as dismal as could have been the case,” according to Martyn Beck, head economist for the EY Item Club.
Nevertheless, he continued, “actual household earnings are still on course for a considerable decrease over the next 12 or so.”
Next Friday’s “mini-Budget” is expected to include tax cuts promised by Prime Minister Liz Truss to help the economy, as well as the estimated cost of proposals to regulate energy prices.
The decline in the value of the pound against the dollar to a new 37-year low today is not unique. In addition, the pound fell to its lowest point about the euro in almost two years.
Therefore, even while the US dollar is strengthening overall, the pound sterling is still coming under specific additional pressure on global markets.
The trigger this morning was much poorer than anticipated retail sales data. However, the markets will wait until next Friday to learn how much borrowing will be necessary for the government’s energy plan and tax cuts.
Although the Eurozone is also experiencing a recession, there is little consolation in such companionship.
A weakened currency increases the cost of imports of necessities like food and energy, thus extending the period of high inflation. Additionally, exporters won’t benefit significantly from a weaker pound if the UK’s closest trading partners are also experiencing a recession.
The Office for National Statistics (ONS) said that the decline in retail sales has been ongoing since the summer of 2021 when all Covid restrictions were lifted. Since December 2021, the August decline was the greatest month-over-month decline.
According to the ONS, sales of food, non-food, online, and gasoline all decreased throughout the month.
While alcohol and cigarette sales increased by 6.3% in August, supermarket sales volumes decreased by 0.9%.
According to the ONS, consumer spending is being reduced as a result of rising prices and concerns about affordability.
People are “obviously thinking hard about what they spend their money on,” according to Danni Hewson, an AJ Bell financial analyst.
“Simply put, it’s not stretching as far as it once did, and the necessities must come first. But even necessities are becoming more expensive, and as the threat of uncontrollable gasoline prices grew, people did the only thing they could: they made cuts “She spoke.
The ONS reports that sales at department stores decreased significantly in August by 2.7%, while sales at clothes stores decreased by 0.6%.
According to Ms. Hewson of AJ Bell, “Big ticket purchases are being delayed, and that’s unlikely to change in the coming months.”
John Lewis reported on Thursday that although the number of consumers was greater than the previous year, they were spending less and not purchasing as many “big ticket” items.
For the first half of its fiscal year, the department store and its retail network Waitrose posted a deficit of £99 million. Waitrose said that basket sizes had decreased by “almost a fifth” and that sales were down 5% from the previous year.
Following Russia’s invasion of Ukraine, food costs have been rising globally, which has been one of the key factors driving up prices at supermarket checkout lines.
While it decreased from 26.3% in July to 25.7% in August, the percentage of retail sales made online is still much higher than it was before the pandemic.
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