Retail Sales Slide as Consumers Fret
British consumers were in a sour mood in November, as retail sales fell 0.6 percent. This reading was much worse than expected, as the estimate stood at +0.3 percent. No less worrying, retail sales have failed to post gains since July. Will consumers’ moods improve, now that there is more political certainty and Brexit is set to become a reality? If not, we can expect the pound to head lower. Another indication of subdued consumer activity is low inflation, which has come in at just 1.5% in the past two months. This is well short of the BoE’s inflation target of 2 percent.
There were no surprises from the Bank of England on Thursday, which maintained interest rates at 0.75%, where they have been pegged since August 2018. In a repeat of the November meeting, two of the nine MPC members voted to immediately trim rates to 0.50%. The bank’s rate statement was dovish, and left no doubt about its concern over risks to the economy, stating: “If global growth fails to stabilize or Brexit uncertainties remain entrenched, monetary policy may need to reinforce the expected U.K. recovery.” This dovish stance has weighed on the British pound.