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UK retail sales falling at highest rate since 2008

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Talk of economic stimulus packages and interest rate cuts intensified as data released this week underlined the chal-lenges facing the global economy. All eyes today are on the annual gathering of the world’s central bankers at Jackson Hole, Wyoming, where Fed chair Jerome Powell will give his keynote speech this afternoon. Many will be expecting a significant policy announcement - investors are hoping for an interest rate cut by the Fed next month, but whether that will happen is open for debate. The minutes of the Fed’s July meeting (when it cut rates by 0.25%) were released this week and showed there was no clear consensus for the cut. This reduction was also described as a “mid-cycle” adjust-ment, which suggests it was not the beginning of a rate-cutting spree. After much criticism from Donald Trump, who has called for a cut of up to 1%, Powell is under pressure to come up with something. He may have been given some space to act after an IHS Markit PMI survey showed US manufacturing contracting for the first time in nearly 10 years in August. The Jackson Hole meeting follows China’s announcement of additional tariffs on American goods in two tranches in September and December, adding to concerns about global trade.

Other countries are also preparing to prop up their economies. Earlier this week, Bloomberg reported that Germany’s finance minister had suggested a 50-billion-euro package to soften the impact of a possible recession. Germany’s man-ufacturing sector has been hard hit by weakening demand although its composite PMI survey this week did show a small improvement thanks mainly to a decent performance from its services sector. Its manufacturing, sector, meanwhile, re-mains firmly in recessionary territory.

In addition, last weekend, the Peoples’ Bank of China announced a stimulus package through reforms to its banking sys-tem that will help lower borrowing costs for companies and, in turn, should stimulate investment and spending.

The probability of more stimulus in Europe was boosted by data showing inflation in the eurozone reached just 1% in July, down from 1.3% in June and only half its target rate of 2%. In the UK, another survey showed that people are be-coming less confident about their finances and are cutting back on big purchases. The IHS Household Finance Index fell from 44.3 in July to 43.7 in August, its lowest level in three months. Britons have been buying fewer expensive items such as cars and holidays, with the total number of big purchases falling at the second fastest rate since September 2017.

There had been hopes that consumer spending could prevent the UK from falling into recession in the next few months, but they now seem to be fading. Further evidence of consumers battening down the hatches came in a survey released this week by the Confederation of British Industry (CBI) that showed British retail sales falling at their fastest rate since the financial crisis. The balance of retailers reporting year-on-year growth in sales in August dropped to -49 this month from -16 in July, way below expectations for an improvement to -11. This was the biggest drop since December 2008 and the second weakest reading since records began in 1983. Just 10% of the firms said sales volumes were higher in August than a year earlier, while 58% said they were lower. Only internet retailing reported a rise in sales.

 

 


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If you invest in currencies other than your own, fluctuations in currency value will mean that the value of your investment will move independently of the underlying asset. The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd. The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.

 

 

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