Pound Falls after Weak UK Data
Sterling has fallen after the release of weak UK data, and is trading lower against both the dollar and the euro. The fall comes after yesterday’s gains when the pound reached the highest level since spring 2008.
UK retail sales in 2020 post record fall
Despite expectations for a 1.2% gain, retail sales volumes in the UK rose by just 0.3% in December from January, according to data from the Office for National Statistics released on Friday. Clothing sales rose 21.5% after a 19.6% drop in November. In 2020, retail sales fell by 1.9% when compared with 2019, due to the coronavirus lockdowns. On the other hand, online and mail order sales rose 32% in 2020. Clothing stores, petrol stations and department stores recorded significant falls in sales volumes when compared to 2019.
Jonathan Athow, deputy national statistician for Economic Statistics, said: “December’s retail sales increased slightly, driven by an improved month for clothing sales, as the easing of some lockdown measures for parts of the month meant more stores were able to open. Food store sales this month were subdued as retailers reported lockdowns and restrictions on the sale of non-essential items impacted on footfall. Retail sales for 2020 saw their largest annual fall in history as the impact of the pandemic took its toll. Clothing retailers fared particularly badly, with a record annual fall of over 25%, while movement restrictions led to a record year-on-year decline for fuel sales.”
Ian Geddes, head of retail at Deloitte, noted that retail showed resilience as “Strong performance in grocery and record-breaking online sales for non-food meant that Christmas 2020 was the most digital ever.” He also added: “For now, pent-up demand is likely to see shoppers out in force once restrictions lift, as we saw in summer at the end of the first lockdown. Crucially, the reopening of the high street will this time coincide with the ongoing vaccine rollout, which should boost consumer confidence and see them return to stores once more.”
Paul Dales, chief UK economist at Capital Economics, also commented: “The tiny rise in retail sales in December shows that it wasn’t a very merry Christmas for retailers. And January’s lockdown means it won’t have been a happy start to the new year either. But at least retailers are more immune to lockdowns than many other consumer-facing businesses. The upshot is that retail sales added almost nothing to GDP in December and January’s lockdown means sales will probably drop back again this month. Admittedly, they won’t fall as far as non-retail consumer spending. According to daily data of electronic card payments, so far this month consumption has declined from being slightly above its pre-pandemic level in December to about 35% below. We suspect that GDP may fall by around 2% m/m in January. But hopefully that will be the last decline.”
The release of separate data showed that the UK’s borrowing rose in December to the highest level and it marked the third-highest borrowing in any month since 1993 when records started. The ONS said that public sector net borrowing was £34.1bn in December 2020, £28.2bn more than in December 2019.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said that it is possible that total borrowing could be close to the OBR’s £393.5bn forecast. He explained that December’s high borrowing “reflected a 26.1% year-over-year jump in central government expenditure, mostly related to the Coronavirus Job Retention Scheme and the Self-Employment Income Support Scheme. Tax receipts were only down 1.2% year-over-year, thanks to growth in corporation taxes and stability in income tax receipts. However, borrowing will fall once the support schemes expire at the end of April –– and next year we could see sharp tax rises, to get the public finances back on track, Tombs predicts. Public borrowing will fall sharply from about 20% of GDP this year to between 8% and 10% in 2021/22, if the government stops the furlough and self-employment income support schemes in the spring, and healthcare spending declines. We doubt that the Chancellor will go a step further in the Budget on March 3 and push through large immediate tax rises or non-health spending cuts.” He noted that fiscal policy will tighten, and taxes are expected to rise significantly in 2022.
Are you Transferring Funds Abroad?
If you are transferring funds overseas, contacting a currency specialist could save you time and money. Whether you are sending money to family or paying your employees abroad, get in touch with Universal Partners FX to find out how much you can save in your international money transfers. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your personal or business’ transfer needs.