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Pound falls to low for the year on poor economic data

The pound dipped below $1.30 for the first time since last autumn amid poor economic data and Brexit-related political turmoil. Sterling also weakened against the euro, with the pound worth less than €1.12 as the summer holiday season approaches.

UK retail sales volumes dropped unexpectedly in June, according to official figures, with a 0.5% monthly decline after growing 1.4% in May and 1.3% in April.

Supermarkets and off-licences benefited from the warm weather and World Cup in June, but this was offset by lower sales in non-food stores, accord to the Office for National Statistics (ONS). Even so, combined with April and May, sales growth for the second quarter was the fastest since 2015. 

June’s decline followed wage and inflation data which suggested that the economy was not generating as much inflationary pressure as the Bank of England had forecast - raising questions about the probability of an interest rate rise in August.

While UK employment rose by 137,000 in the three months to May and unemployment remained at a low of 4.2%, average weekly earnings growth slowed to 2.5%.

UK inflation rate also came in lower than expected at 2.4% in June. Rising energy costs were offset by falling prices for clothes and recreation.

Official data also showed house prices rising at their slowest pace since 2013. The ONS said that UK price growth had slowed to an annual rate of 3% in May from 3.5% in April.

London prices were down by an annual 0.4%, compared with rises of 6.3% in the east Midlands and 5% in the west Midlands.

Meanwhile, the UK’s public finances continued to improve in June, with the quarterly deficit lower than at any time since 2007.

Government borrowing in the first three months of the 2018/19 financial year was £16.8bn, some £5.4bn lower than in the same period last financial year.

Andrew Wishart, UK economist at Capital Economics, said: “It’s early days yet, and the data can be subject to large revisions, but if sustained the fall in the deficit would see public borrowing undershoot the Office for Budget Responsibility’s 2018-19 forecast by £7bn or so”.

“The upshot is that the OBR should allow the Chancellor a bit more room for manoeuvre in its autumn forecast.”

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Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

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