Another set of underwhelming economic stats are released adding to evidence that the UK economy is slowing down.
- Bank of England likely to ignore data until after EU referendum
- Sterling's rally pauses alongside stock market profit-taking
UK Retail Sales (month-on-month) for March read at -1.3%, well below market expectations for an almost unchanged reading of -0.1%.
Commentators had predicted strong retail sales figures, so today’s data may be hard to swallow for those who’d had a positive outlook.
“Any number of factors could be to blame, from bad weather to poor employment figures, along with the reality that wage growth remains stagnant. Consumers may also be nervous about an uncertain Brexit outcome, ensuring they keep a tight hold on their wallets,” says Dennis de Jong, managing director at UFX.com.
The data comes a day after employment figures from the ONS revealed an unexpected uptick in unemployment and slowing wage increases.
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The British pound held its April gains despite this news, however in the wake of the retail sales numbers markets are looking less convinced.
“Mark Carney and his BoE colleagues will be hopeful that the pending arrival of summer will prompt the masses to hit the high street, and drive those numbers back up,” says de Jong.
The Bank of England is probably unswayed by the data and only once the mid-year EU referendum is passed, assuming without incident, will they start focussing on the economy once again.
Data is Reassuring: Lloyds + Barclays
Putting a positive spin on the numbers are economists at Lloyds Commercial who note that while the rolling quarterly growth picked up to 0.8% from 0.5% last month, it was below the 1.0% recorded for 2015 Q4.
“As such, despite the soft headline, these numbers are still moderately reassuring,” says a flash note from the bank in response to the release.
Following a buoyant January, Lloyds reckon the recorded strength of sales over Q1 as a whole continues to signal that consumers are likely to remain the key driver of growth of the UK economy in 2016.
Andrzej Szczepaniak at Barclays agrees:
"Today’s positive Q1 16 growth print results in a +0.06pp contribution to Q1 16 services output, only marginally down from +0.07pp in Q4 15. Consequently, it appears retailing in Q1 16 has been slightly more resilient than expected."
Consumer momentum is still currently withstanding the increased domestic uncertainty, helped by a still-brisk pace of high street discounting, with the retail deflator – outside of the impact of fuel prices – unchanged from last month at -2.1% y/y.
However, there are concerns as much of the retail spending could be exacerbating the UK's debt problem.
Barclays believe this resilience is likely supported by strong unsecured credit growth seen over Q1 16 thus far relative to Q4 15 (an average of 9.1% y/y versus an average of 8.4% y/y, respectively).
Consumers are also suspected to be eating further into household savings budgets (in Q4 15 it already printed 3.8% of gross disposable income, an historic low since records began), given there has been no significant acceleration in wage growth thus far into Q1 16.
European Markets Flat After Strong Run, GBP Responds
We have been pointing out that over recent weeks the UK currency has been tracking the moves of European stock markets, particularly when up against the dollar, euro and yen.
This is owing to the GBP's new-found status as a 'risky' asset.
So when markets stall, so does the pound.
Global stock markets are finally taking a breather after a sensational rally that has seen the Dow rally to just over 1% below its record high.
"Despite substantial gains yesterday, an element of hesitancy is evident within Europe ahead of a clear event risk with the ECB due to release its latest monetary policy decision this afternoon. Recent stock gains have clearly come on the back of strong energy and metals price, as investors attempt to jump back into mining and oil companies at advantageous prices," says Joshua Mahony, Market Analyst at IG.
Comments from both the IEA and EIA have lit yet another fire under crude prices in the past 24 hours, with EIA US production data in particular showing US output is finally on the wane.
Recent gains in crude have been more to do with sentiment and the knowledge that prices will be better off in the long run