The week began with a panic as the Turkish lira continued its freefall on Monday, taking its total fall against the US dollar to 45% this year and to 20% in the first two weeks of August alone. It recovered substantially as the week progressed, but remains sharply down as the Turkish/US diplomatic and trade spat continues. Pressure is mounting on Turkey’s leadership to take more drastic action to curb its soaring inflation, but it has so far been reluctant to raise interest rates.
Meanwhile in the UK, two surveys on Monday painted a downbeat picture of UK retail sales.
A report by Visa and IHS Markit showed consumer spending down by 0.9% in July compared to a year earlier, despite the hot weather and world cup related boost to sales. The data from both surveys suggests the uplift in retail sales seen in the second quarter has not extended into the third quarter; a worrying sign given that the Bank of England has just raised interest rates which will further squeeze household incomes.
The British Retail Consortium’s (BRC) reported that footfall fell by 0.8% in July, a third monthly decline in a row. It was down by 0.5% year on year in retail parks and by 3.4% in shopping centres.
As if to confirm the challenges facing UK high streets, the ONS reported on Thursday that retail sales had in fact rebounded in July after falling in June, thanks in a large part to growing online sales. The volume of retail sales rose by 0.7 per cent during the month, up from a decline of 0.5 per cent the previous month, said the ONS. Online spending grew by an impressive 15.3% and now makes up 18.2% of retail sales – a record high.
Springboard and BRC’s results found the national town vacancy rate stood at 9.2 per cent in July, unchanged from April this year. “Aside from short-term weather impacts, there’s no escaping the fact that retail is changing,” said Helen Dickinson, CEO of the BRC.
“With fewer people visiting physical stores and fewer purchases being made there, at the same time as costs are going up year on year, it’s no surprise that we’re seeing many retailers reduce their store portfolios. We need to reinvent British high streets which is why we’re calling for a freeze in business rates in the Chancellor’s next Budget,” she added.
The latest inflation data was released by the ONS on Tuesday. It showed inflation rising from 2.4% in June to 2.5% in July, reversing the trend of gently falling inflation since last November. The rise was blamed on higher transport costs, computer games and fuel, according to the ONS.
In a separate report from the ONS, the unemployment rate dropped to 4% in the three months to June, the lowest since level since 1975. But despite virtually full employment, total wage growth in the UK remained stubbornly low, at 2.4%, down from 2.5%, while regular pay growth dropped to 2.7% from 2.8%. The result is that higher inflation is piling more pressure on household finances and is likely to keep a lid on consumer spending.
More evidence also emerged this week that the UK property market is flagging. Figures from the ONS showed average property prices growing at their slowest rate for five years. Prices were up by an average of 3% in the year to June, dragged down by house prices in London which fell by 0.7%. All other areas showed gains, led by West Midlands which saw prices rise by 5.8%.
Economists at PWC forecast house prices in London to continue to fall this year and next, as stretched affordability and Brexit-related uncertainty reduce demand.
Main source of information: Company Report and Accounts, Bloomberg
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