- A poor December for UK retailers
- Is weaker demand a good thing for the BoE?
- GBP/JPY eases off eight-year highs
UK retail sales fell sharply in December as consumers tightened their pursestrings during what is normally a hugely important time of year for retailers.
Any sense of optimism from the jump in sales in November was short-lived, with the decline in sales last month as widespread as it was steep. Everyone from food retailers to department stores saw a sharp reduction in sales as consumers spent less on gifts and, as it turns out, food during the festive season.
While real household incomes are rising once more, the last two years have clearly taken a significant toll and it would appear many are not yet feeling better off as a result of inflation falling below wage growth.
Some of that may be psychological after two years of seeing bills and prices rising so much compared with incomes but there will also be plenty whose incomes are still being squeezed or who have savings buffers that need rebuilding and debt repaying.
Then there’s the evidence we’re continuing to see in the aftermath of lockdowns that people are more inclined to spend on experiences than they are goods which has perhaps lasted longer than expected.
Either way, the question that Bank of England policymakers will be asking themselves is what this all means for the economy and the inflationary environment. While problematic for retailers, less demand could help the central bank in its mission to get inflation back to 2% and, as a result, cut interest rates sooner than it would currently admit.
GBP/JPY Eases From Multi-Year Highs
The pound had been performing very well against the yen so far this year having recouped all of the losses sustained in December.
Source – OANDA
The GBP/JPY pair hit an eight-year high earlier in the session before the retail sales data took the wind out of its sails. It’s been quite range-bound over the last six months between 178 and 188 and that may well now remain the case after today’s figures. But prior to them, it appeared to be picking up momentum at just the right time. It will be interesting to see if the pair has another run at those highs once the dust settles.