Sterling has retreated from three-week highs as risk-off sentiment prevails due to the escalating European gas crisis and fears of an impending German recession.

Investors seek the safety of the US dollar, as a safe-haven asset. As investors become more cautious ahead of the Fed's anticipated announcement of a possible 75-basis point rate hike, the dollar has found demand.

There is little cause for optimism on the UK political front, where contenders Rishi Sunak and Liz Truss are engaged in a leadership contest.

Money markets predict a risky 50-bps increase rather than a cautious 25-bps increase ahead of the Bank of England (BoE) rate decision next week. However, economists are far less certain, with 25 out of 54 questioned by Reuters anticipating an increase of 0.5 percentage points.

This week's key event will be the FOMC decision due on Wednesday.

Euro weakens due to fears of Russian gas supplies

After Russia claimed there are some issues with another Nord Stream turbine, the euro fell sharply on Tuesday, July 26.  Russia appears determined to restrict gas shipments to Europe in retaliation for Europe's support for Ukraine.

Around 35% of Europe's energy needs are met by imports from Russia, while this country receives 70% of its energy earnings from the EU.

German business confidence plummeted to the worst level since the early months of the epidemic. A measure of expectations released Monday by the Munich-based Ifo Institute, showed that Germany is on the brink of a recession, due to high inflation and limited energy supplies from Russia.

Markets will be looking at Europe in the coming days and months, as gas prices will continue to be a serious source of concern. Therefore, the euro will continue to suffer from tighter gas supply and rising costs.

UK retailers hit by a drop in sales

British retailers feel gloomy about the outlook for August, after being hit again by falling sales this month. According to the CBI's most recent "distributive trades" report, retail sales volumes decreased in July as demand was hampered by the rising costs of living.

The CBI's July retail sales balance increased somewhat from June's -5 to -4, but August estimates fell to -14. Since March 2021, when many stores were still subject to Covid-19 lockdown restrictions, this reading has been the lowest.

However, this time, consumers have even less purchasing power due to declining real salaries and rising costs for commodities.

As customers struggle to deal with the effects of the cost-of-living problem, retail activity will continue to suffer.

After a sustained period of expansion dating back to March 2021, sales volumes declined as inflation rose and economic growth slowed down. Retailers also stated that their stock levels were at their highest point since July 2020 in relation to anticipated demand, but this means that if demand falls shops will have too much stock. On the other hand, this also suggests that supply chain issues have eased.

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The pound is under pressure, after the release of disappointing retail sales on Friday. UK retail sales fell 0.1% month-on-month in June, which is better than the market’s expected -0.3% reading and May’s -0.8% number. Core retail sales rose 0.4% said the ONS, beating expectations for -0.4%.

The numbers show that sales were down 5.8% in the year to June, a number that is lower than the market’s expected -5.3%.

While core retail sales were slightly higher, spending fell sharply. The data supports the belief that the Bank of England will go for a 25-basis point hike in August. This move will disappoint markets which have already priced in a 50bp hike and could weaken the pound. With rising inflation, UK consumers will continue to struggle.

UK retail sales in detail

UK retail sales dropped for the second month in a row and analysts say this is a sign that the economy is slowing. Retail sales are seen as a measure of the UK’s economic health which relies on consumer spending. So, Friday’s retail sales data suggests that consumption is weakening and further weakness for the currency lies ahead, particularly against the Dollar.

While food sales volumes rose by 3.1% due to the extra bank holiday for Queen Elizabeth’s jubilee celebrations, retail sales overall declined. As Paul Dales, Chief UK Economist at Capital Economics said, people were “stocking up on sausages rolls, cakes and alcohol for Jubilee street parties." However, he warned that “the surge in inflation and resulting big fall in real household disposable incomes means that a recession is now inevitable.”

Retails sales: What the economists said

The British Retail Consortium, a lobby group, said that UK consumers will face “hard days ahead.” Its chief executive, Helen Dickinson, highlighted the damage of inflation on consumer confidence. As she said, “Discretionary spending and particularly bigger purchases were put off as consumers become increasingly concerned about the future. As a result, furniture sales and white goods were particularly hard hit, while food sales held up a little better.” This is then the most difficult period since the pandemic started as retailers face higher costs and weaker demand.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Households are continuing to spend more on goods, but are getting less in return.” Tombs said that the retail sales will probably rise in the third quarter of the year as the threshold for national insurance contributions and cost of living payments increase. Similarly, household’s real disposable incomes will also increase in the third quarter, which will push retail sales higher. However, disposable incomes could fall in the fourth quarter, as any support from the government will not make up for the impact on real disposable incomes which will be further affected by October’s 65% rise in the energy price cap.

The pound will likely remain under pressure for as long as market sentiment towards the UK economic outlook remains challenged.

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The pound fell on Friday against the US dollar following disappointing UK Consumer Confidence data for June and Retail Sales data for May. UK consumer confidence has fallen to its lowest level since records began 50 years ago, as the cost-of-living crisis has hit households. UK Retail Sales fell more-than-expected on YoY but rose on MoM.

On the political front, Conservatives’ Chairman Oliver Dowden resigned after a defeat in UK by-elections. The release of disappointing UK Retail Sales have raised concerns about the economic outlook, while the Conservative party’s defeat has also put more weight on the pound.

Later today, Bank of England Chief Economist and Executive Director Huw Pill’s comments will be closely watched and could provide further direction to the pound.

Consumer confidence falls

Research company GfK’s monthly survey of Consumer Confidence Index dropped one point to -41 in June, hitting a new record low this month. People’s personal financial expectations fell sharply as inflation pinched their incomes. Measures of changes in personal finances and general economic situation over the last year and the next year all dropped. Joe Staton, Client Strategy Director at GfK explained that people were responding to the new economic situation in Britain and “history shows that consumers will not hesitate to retrench and tighten their purse strings when the going gets tough.” He said: “With prices rising faster than wages, and the prospect of strikes and spiralling inflation causing a summer of discontent, many will be surprised that the index has not dropped further. The consumer mood is currently darker than in the early stages of the Covid pandemic, the result of the 2016 Brexit referendum, and even the shock of the 2008 global financial crisis, and now there’s talk of a looming recession.”

Retail sales fall in May

More disappointing news also weighed on the pound. Retail sales fell in May due to the rising cost of living which led consumers to cut back on food shopping. Retail sales volumes fell by 0.5% in May from April, according to figures released from the Office for National Statistics (ONS).

The fall in sales volumes was driven by reduced spending in food stores which fell by 1.6% month-on-month.

UK Retail Sales improved from -0.7% that was expected to -0.5% MoM, but the fall in the yearly numbers from -5.7% in previous readings to -4.7% has pushed the pound lower.

On Thursday, the release of the UK S&P Global PMIs also triggered concerns about the UK’s economic growth.

Conservative defeat

The Conservatives lost 2 safe seats on Friday, dealing a harsh blow to the party and adding more pressure on the British currency. The double defeat exposed the party’s weaknesses and could renew talk of another no-confidence vote against the prime minister. The Liberal Democrats party won the Tiverton and Honiton seats while the Labour party won in Wakefield. The Conservative Party Chairman Oliver Dowden resigned after the disappointing results. The double defeat after the by-elections on Thursday is another hit to the Prime Minister who survived a no-confidence vote in his party earlier this month. While the defeat could revive talk of another no-confidence vote, Johnson should be safe until next June.

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The pound rose after the release of better-than-expected retail sales for April.  UK retail sales volumes rose by 1.4% in April after falling 1.2% in March. The result is higher than the -0.2% the market was expecting. While rising inflation might not have destroyed consumer spending, economists are warning that the BoE will need to act immediately to curb inflationary pressures.

Retail sales

Food store sales volumes rose 2.8%, as consumers spent more on alcohol and tobacco in supermarkets. Alcohol and tobacco sales volumes jumped 8.4% in April, suggesting that consumers spent more time visiting the off-licence instead of the pub. Clothes sales also rose as the summer holidays and weddings are approaching. Fuel sales rose 1.4% after they fell 4.2% in March following higher petrol prices.

The wider picture is however disappointing as over the last three months, sales volumes fell by 0.3% when compared with the previous quarter. As ONS deputy director for surveys and economic indicators Heather Bovill said: “Retail sales picked up in April after last month’s fall. However, these figures still show a continued longer-term downward trend.”

Some analysts are optimistic and have noted that the report shows that the cost-of-living crisis hasn’t destroyed consumer spending. While things may get worse as inflation rises further, economic activity remains resilient.

Rising inflation: BoE chief economist’s warning

Huw Pill has warned that monetary policy needs to be tightened to stop inflation getting out of hand. In a speech to the Association of Chartered Certified Accountants in Wales, Pill said that the central bank has to deal with soaring inflation which threatens to become embedded in domestic price setting and slowdown growth by squeezing household incomes. Pill said that “the balance of risk is tilted towards inflation proving stronger and more persistent than anticipated in that baseline.”

In response to Pill’s warning, Samuel Gee, director at Bristol-based Manning Gee Investments, said that rates will continue to rise, but the economy will cope with more gradual increases, as the Fed’s more aggressive hiking plan has already countered concerns. In the UK, with an economy recovering from the pandemic and a war in Europe, there are many difficulties and risks.

Allan Monks, economist at JPMorgan, said that Pill’s concerns reveal that the MPC is perhaps “leaning towards a more hawkish interpretation” of the bank’s recent guidance.

Another warning came from former Bank of England governor Mervyn King who said that British people should expect a "very unpleasant period", with "considerable" interest rate hikes.

Lord King attacked central banks including the Bank of England and said they should take responsibility for the cost of living crisis which has pushed inflation higher. He said they would have to raise interest rates immediately: "It takes tough action. And it's not a pleasant period through which we're going to have to go."

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Growth concerns and recession worries have hit markets and the pound is expected to be weighed down if global investor sentiment remains gloomy. Late on Thursday, it recovered much of Wednesday’s decline, benefitting from a weaker US dollar.

Stock markets fall

Following the warnings of rising costs from US retailers Target and Walmart this week, market confidence was hit. While early this week the pound rose, a change in sentiment midweek has pushed it lower. The FTSE 100 which has a positive relationship to the pound, was down 2.2% on Thursday, with consumer goods and services firms, energy companies, banks and industrial stocks being some of the worst-performing sectors.

Royal Mail was leading the selloff, which fell over 10%, after warning about rising inflation and slowing growth. Investment group 3i (-8.3%), distribution firm Bunzl (-5.6%) and technology investor Scottish Mortgage (-5%) were also lower. Kingfisher (-4.8%), Tesco (-4.8%), and Unilever (-4.7%) fell too, as concerns about consumer spending being hit due to rising inflation rose.

As AJ Bell investment director Russ Mould said, “After the Walmart wobble on Tuesday, Target struck terror into the hearts of the US retail sector and was a big contributing factor behind the worst day for US markets since 2020 on Wednesday. The extent of the impact of inflation on these giants of American retailing has woken investors up, once again, to the huge impact surging prices are having on every facet of the economy.” This along with potential aggressive rate hikes from the Fed and stagflation concerns, have hurt investor sentiment.

UK manufacturing confidence falls

In the UK, confidence among UK manufacturers has fallen, despite UK manufacturing output growing at its fastest pace in ten months over the three months to May. According to the CBI’s latest Industrial Trends survey, confidence dropped in the last quarter, with investment plans for buildings and machinery plummeting. Many firms are also planning to raise their prices which will add more pressure to the households already struggling with higher costs.

Global concerns about rising inflation

In the near-term, the pound could respond to changes in global market sentiment. If the current stock market selloff continues, then Sterling will underperform, especially against the US dollar.

At the moment, investors are concerned about rising inflation and a possible recession in global economies, including the US, UK and the Eurozone.

Analysts have noted that any potential gains for the pound or stock markets will be temporary. A key concern for markets is the expected tightening of monetary policy in the US, with 50 basis point hikes expected at the next three policy meetings. This means that the cost of borrowing will not only rise in the US but also across other global economies.

The shocks from the war in Ukraine as well as the Covid lockdowns in China have also sparked global concerns about an economic slowdown.

Once markets start recovering and sentiment strengthens, then the pound may start to recover too. Morgan Stanley expects the current risk-off phase to come to an end around the third quarter of 2022, since by that time rate hike expectations will have reached their zenith alongside inflation. But analysts at Barclays said that positive global conditions could take up to a year to return. Others are more positive, as they believe economic data remains strong and consumer demand will not be destroyed.

What’s coming up

Any comments around the BoE monetary policy tightening will be a key driver for Sterling for the rest of the week, while April retail sales data due out on Friday, will also provide direction. The March report was the main cause of the mid-April drop in GBP/USD, as it highlighted the cost-of-living squeeze. If the retail sales report disappoints, and risk appetite remains weak in the coming days, then the pound to US dollar exchange rate could fall.

With the current volatility and weak market sentiment, contacting a currency specialist will allow you to safeguard your business and finances by planning ahead. If you are a business transferring funds overseas, get in touch with Universal Partners FX and their dedicated team to discuss the latest market movements ahead of your currency exchange. Universal Partners FX can provide invaluable help on efficient risk management and tailored solutions to your business’ transfer needs.

 

The pound has plummeted and has hit its lowest level against the US dollar since September 2020. The release of disappointing economic data, including weak retail sales in March and the cost-of-living crisis which has affected consumer spending are some of the reasons behind the sharp drop. Additionally, markets have already priced in interest rate hikes by the Fed which is offering support to the US dollar.

CBI’s industrial trends survey of UK factories

On Monday, the Confederation of British Industry’s (CBI) first quarterly industrial trends report since the war in Ukraine started, highlighted the pressures on UK factories from rising costs. UK manufacturers raised prices in order to cover surging raw material and energy costs, and a further acceleration is expected, according to the CBI. Average costs grew at the fastest rate since July 1975 and firms increased domestic prices at the fastest pace since October 1979, which will feed through to consumers.

UK manufacturing confidence was hit after the war in Ukraine and rising inflation. Both business sentiment and export optimism fell in April, as both commodity prices and uncertainty increased.

Companies reported that productivity and new orders slowed over the last quarter, and new orders are expected to continue to drop in the next quarter.

Anna Leach, CBI deputy chief economist, said that manufacturing orders and output have continued to grow, but the war in Ukraine has made things more difficult, especially following the pandemic, as costs have risen and concerns about the availability of raw materials have grown. She noted that is not surprising that sentiment has weakened in the last three months with manufacturers cutting back their investment plans.

UK economy slowing down

UK retail sales disappointed markets while UK consumer confidence fell to lows last seen during the time of the financial crisis in 2008. The potential slowing of economic activity weakened the pound and markets are beginning to realise that they have aggressively priced in too many rate hikes for 2022. Some analysts believe that investors should remain cautious about the pound as the Bank of England will be unable to keep pace with the aggressive tightening cycle priced in by the currency market. 

S&P Global's PMI data for April also showed a further slowing in growth rates as inflation surged.

Derek Halpenny, Head of Research, Global Markets, at MUF said: "Downside risks for the pound are building with a host of specific negative developments providing reason for GBP sentiment to worsen over the coming days and weeks.”

Economists at MUFG Bank, also noted that the GBP remains vulnerable due to the economic slowdown and unfavourable financial market conditions. They noted that the policy divergence between the BoE and Fed will be sharper in the coming months. As more economic data demonstrates that the UK economy is experiencing a slowdown, they expect the BoE to become more cautious about further rate hikes this year. On the other hand, the Fed is more determined to proceed to further rate hikes this year, as the US economy is less vulnerable.

 

 

They warned that the pound will remain more sensitive than the US dollar due to concerns about gloomy global financial conditions following aggressive policy tightening.

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The pound fell sharply against the euro and the US dollar following a risk-averse market environment and disappointing data releases from the UK. On the other hand, the risk-off mood increased demand for the safe-haven dollar, while the euro surged to a near two-week high as markets have priced in an early ECB rate hike.

The pound came under pressure following cautious comments from Bank of England (BOE) officials and disappointing data releases from the UK. The Office for National Statistics reported on Friday that retail sales fell by 1.4% in March.

On Thursday, BoE Governor Andrew Bailey noted that UK inflation was more like that of the Eurozone than the US: "We must not be complacent about inflation expectations” as we are walking "a very tight line between tackling inflation, and the output effects of real-income shock."

Gloomy UK data releases

The risks for Sterling have increased following lower than expected economic releases. UK consumer confidence fell to very low levels last seen during the financial crisis of 2008, as consumers are now less confident about the economy.

Retail sales for April also disappointed with a reading -1.4% month-on-month in March. S&P Global's PMI data for April showed a further slowing in growth rates as inflation has surged.

Investors are cautious as they believe the Bank of England will disappoint markets who have priced in a more aggressive tightening cycle. With Friday’s release of gloomy consumer and PMI data, as well as political uncertainty at home and abroad, analysts have become more sceptical.

PMI data

PMI data showed that there was further slowdown in UK economic growth with the S&P Global/CIPS Services PMI Flash for April reading at 58.3, much lower than the 62.6 in March. Manufacturing PMIs came higher at 55.3, but services account for a bigger share of the economy. The overall Composite PMI came below the 59 forecast, at 57.6.

Demand was hurt from the cost-of-living crisis and economic uncertainty due to the war in Ukraine. Consumer confidence is very important as the UK is essentially a services economy and the way consumers and businesses spend their capital affects economic growth. The GfK said their UK consumer confidence measure is now "in freefall as Index crashes in April to -38." Joe Staton, Client Strategy Director at GfK said: “The cost crunch is really hitting the pockets of UK consumers and the headline confidence score has dropped to a near historic low." 

Retail sales

Retail sales for April dropped below expectations at -1.4% month-on-month in March, below the -0.3% markets expected. The March fall marks the second month that retail sales declined and demonstrated that the wage squeeze is affecting consumer spending.

Chief UK Economist at Pantheon Macroeconomics Samuel Tombs said that low consumer confidence means that households will withdraw their savings cautiously, but looking ahead, retail sales volumes are expected to fall further as households struggle with their finances and inflation continues to rise.

 

 How will the data affect the Bank of England’s decision?

The gloomy data will force the Bank of England to consider how fast it will hike interest rates as it shows an economy under pressure. The pound will also come under pressure as markets begin to cut back their rate hike expectations. With Inflation at a 30-year high of 7% and even rising higher in April, the Bank will be unable to curb inflation, as global oil prices and geopolitics are external factors outside its control. While the Bank needs to act by increasing interest rates, Friday’s data has undermined the pound with UK economic growth slowing down and hurting consumer purchasing power.

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The pound US dollar exchange rate lost some of its gains following the release of poor UK retail sales data on Friday morning. The UK retail sales data disappointed expectations as it came in at -0.3% MoM in February, while core retail sales for the UK fell by 0.7% MoM the same month.

The disappointing retail sales data was much lower than the expected 0.6% and the previous reading of 1.9%. The core retail sales, which came at -0.7% MoM was also much lower than the expected 0.5% and the previous reading of 1.7%. When compared to a year earlier, the UK retail sales rose by 7% in February versus the expected 7.8% and last year’s reading of 9.4%, while the core retail sales increased by 4.6% in February versus 5.6% expectations and 7.5% the year before.

Retails sales: main points

According to the Office for National Statistics (ONS), “Food store sales volumes fell by 0.2% in February 2022 with large falls in alcohol and tobacco stores, which may be linked to higher spending in pubs and restaurants as confidence increased in going out; food store sales volumes were 0.1% below pre-coronavirus February 2020 levels.”

In terms of non-food stores sales volumes, there was an increase by 0.6% in February 2022 with growth in clothing (13.2%) and department stores (1.3%), as people returned to their offices and restrictions were lifted.

Automotive fuel sales volumes rose by 3.6% in February 2022 following the end of Plan B restrictions in England at the end of January where people started to travel again, with sales volumes reaching higher pre-coronavirus levels (0.9%) for the first time.

UK consumer confidence falls

GfK’s Consumer Confidence index, which every month provides a snapshot of how UK consumers feel about the economy and their outlook for the next 12 months, has fallen by five points to -31 in March, which are very low levels last seen in October and November 2020.

The forecast for personal finances in the next 12 months fell to -18, which is 28 points lower than this time last year. Expectations for the general economic situation in the next year have also fallen to -49, which is 32 points lower than March 2021.

The Ukraine war, higher cost of living and the pandemic have pushed UK consumer confidence lower as people are more worried about their personal finances. With surging inflation at a 30-year high, and expected to reach 8% in April, people are pessimistic about their financial situation and the more general geopolitical climate due to the war in Ukraine.

Joe Staton, client strategy director at GfK, has warned that there is “more bad news to come.” He said: “A wall of worry is confronting consumers this month and there is an unmistakable sense of crisis in our numbers. Consumers across the UK are experiencing the impact of soaring living costs with 30-year-high levels of inflation, record-high fuel and food prices, a recent interest-rate hike and the prospect of more increases to come, and higher taxation too – all against a background of stagnant pay rises that cannot compensate for the financial duress. This is the fourth month in a row that UK consumer confidence has dropped.”

He also stated that “Confidence in our personal financial situation and in the wider economy are severely depressed while the daily news of unimaginable suffering from a horrifying war in Europe and rising COVID numbers at home is adding to the bleak mood. The outlook for consumer confidence is not good; it’s certain there’s more bad news to come.”

Chancellor Rishi Sunak’ spring statement on Wednesday has also added to the gloomy outlook as households facing the hardest squeeze in the cost of living will get little help, while the Resolution Foundation has warned that 1.3 million people will fall into absolute poverty in 2023.

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The pound has slightly dropped from its over two-month high which it reached this Wednesday, but the outlook remains positive with traders expecting additional gains. Researchers at Barclays also anticipate the pound to continue outperforming its major peers over the coming months.

The pound’s retreat today was not driven by any specific economic factor and could be attributed to traders readjusting their trades ahead of the all-important US consumer inflation figures.

Pound’s positive performance could continue researchers say

Markets generally believe that the pound’s strong performance in the first week of the new year was largely driven by expectations for a February interest rate hike and this could continue in the coming weeks and months.

The market now expects a ~75% chance of a second rate hike at the BoE’s February  policy meeting. This has also been further boosted by expectations that the US Federal Reserve will proceed to a faster and earlier interest rate hike cycle in 2022.

With inflation rising in both the UK and the US, markets expect higher interest rates in the US and the UK, which will support the British currency.

UK retail sales

The latest annual Retail Sales Monitor report from the British Retail Consortium (BRC) showed that sales grew, but consumer spending slowed the final weeks of 2021. The British Retail Consortium said that UK retail sales grew by 2.1% in December with growth coming in at 9.9% year on year. Government restrictions slowed spending, but in general the Omicron variant did not have a massive impact as retail sales held up through December. However, January is expected to be a more difficult month for the high street with footfall at UK outlets seen lower in the first week of January.

Businesses in the retail sector have warned that the spread of Omicron and the increasing costs of living could have a significant impact on sales this year.

Bank of England interest rate hikes

While a February rate hike would be the second interest rate rise in just two months, the total number of hikes to be delivered in 2022 is yet unknown and will be a crucial factor in the pound’s performance.

The Bank of England's unexpected December rate hike has led the market to believe that there will be more near-term rate hikes. As it becomes clearer how the Bank is expected to act and how many rate hikes will be delivered over the coming months, the pound will gain further support.

With the Omicron variant slowly subsiding and markets regaining optimism the British currency will also gain traction. As BBC reported on Wednesday, Covid cases in the UK are decreasing according to the daily figures released by the government, with the number of cases confirmed over the past seven days having fallen 13% compared to the previous week.

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The Pound has strengthened on Friday and is on track to reach its biggest weekly rise since October following the Bank of England’s announcement on Thursday to raise interest rates. The BoE is the first major central bank to raise interest rates since the start of the pandemic. This week, the Federal Reserve has also signalled its intention to tighten its policy in 2022, while the European Central Bank has taken small steps towards rolling back its pandemic-era stimulus on Thursday. It has started by wrapping up its pandemic bond purchases next March. But the Bank does not appear to be raising interest rates soon.

UK interest rates rise to 0.25%

The Bank of England surprised markets on Thursday by raising interest rates to 0.25%. The pound, gilt yields, and bank stocks rose in response of the positive news.

On Friday (17 December 2021), strong UK retail sales data for November along with higher inflation have increased expectations of a February rate hike too.

Retail Sales

The latest positive data on retail sales and resilient consumer confidence have confirmed that consumer demand remains strong. British retail sales rose by 1.4% in November, following strong trading on Black Friday and in the period leading up to Christmas, according to the Office for National Statistics. Retail sales are 4.7% higher than a year before when many shops were closed due to the lockdown. Spending on clothes rose by 2.9%, while other stores such as computer, toy and jewellery shops had a 2.8% growth. With people returning to actual stores, malls and the high street, online retail sales fell to its lowest since the lockdown in March 2020.

Retail sales rose in October too, with consumer spending remaining strong before the Omicron variant hit the economy. According to Heather Bovill, deputy director of the ONS, “Omicron is now casting a shadow over the economy, of course. The work-from-home guidance introduced last week under plan B measures in England has left city centres depopulated, and hospitality firms warn that trading had plunged.”

Expect more rate hikes BoE's Huw Pill says

With inflation shooting higher, the Bank of England chief economist Huw Pill said that the central bank would need to raise interest rates further. Speaking on Friday, Pill explained that the rate increase from 0.1% to 0.25% on Thursday will not be the last and there will be a lot more rate hikes, if inflation remains at its current level. Pill noted that inflation pressures possibly centred around wage pressures in a shrinking labour market will prove persistent.

The hike before Christmas

Deutsche Bank has called Thursday’s Bank of England rate rise “the hike before Christmas.” Deutsche bank’s UK economist, Sanjay Raja, stated that “prudence around inflation” has forced BoE into action. As she clarified, by acting now, the central bank has maximised its chances of meeting their target in two- or three-years’ time.

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