The pound sagged after official figures showing a slip for retail sales in September had currency traders dialing down expectations for a rate rise this year.
Sterling fell from €1.120 to €1.113 and from $1.322 to $1.316 after the Office for National Statistics said that retail sales unexpectedly fell 0.8 per cent in September, reversing from a healthy rise in August.
The long-term trend remained upwards, with total sales in the retail sector 1.2 per cent higher versus the same month in 2016 – but that was down from 2.3 per cent growth in the year to August and well below the expected 2.3 per cent, the ONS data showed.
Amid speculation that rising inflation could see the Bank of England could nudge rates back up at its November meeting, the data will be added to the evidence for those who think the UK economy is still too fragile to handle rate rises.
ONS senior statistician Kate Davies said: ‘September’s retail sales saw a monthly decline of 0.8 per cent, reversing August’s growth.
‘However, there is a continuation of the underlying trend of steady growth in sales volumes following a weak start to the year, and a background of generally rising prices.’
‘These increased costs are reflected in the more rapid growth in the amount spent when compared with the quantity bought.’
Store prices continue to rise across all store types and are at their highest year-on-year price growth since March 2012 at 3.3 per cent, the ONS said.
Online sales values increased year-on-year by 14 per cent, accounting for approximately 17 per cent of all retail spending.
Ian Gilmartin, head of retail and wholesale at Barclays Corporate Banking, said: ‘It’s important to avoid overstating the negatives in September’s retail sales, as retailers did manage to post year-on-year growth despite the range of headwinds they are battling currently.’
‘However, sales were down compared to a month earlier, with the expected dip following August’s strong result worse than predicted.’
‘Footfall struggled, in part due to a wetter-than-usual September, with continued double digit increases in online sales coming to the rescue.’
Shopping centres like London’s Westfield collectively saw a slight sales slowdown in September.
Ian Geddes, head of retail at Deloitte, said: ‘Against a well-documented backdrop of rising inflation, increasing levels of debt and fragile consumer confidence, the retail industry will have been looking forward to entering the final three months of the year – typically a crucial trading period that encompasses both Black Friday and the Christmas shopping periods.’
‘However, the prospect of the Bank of England raising interest rates for the first time in over 10 years next month could come at a challenging time for the retail sector.’
‘Issues around consumer finances, spending power and rising cost pressures are already challenging the industry; an interest rate rise could cause an additional headache for retailers in the lead-up to Christmas.’
‘The main reason for this slowdown is inflation,’ noted Andrew Sentence, senior economic adviser at PwC. ‘Prices of goods bought in shops, at petrol stations and online in September were 3.3% up on a year ago, whereas only a year ago they were falling by 1%.
‘This surge in inflation – which mainly reflects the fall in sterling since the EU referendum vote – is squeezing consumers and holding back the growth of retail spending in volume terms.’