UK Retail Sales Unexpectedly Fall in October Opening the Door to Rate Cut Talks

Highlights

• UK retail sales unexpectedly fell by 0.3% in October.
• Retailers attributed the decline to the cost of living, leading to cautious and selective spending.
• Softer inflation numbers and a pullback in spending could bring forward Bank of England rate cut discussions.

UK Retail Sales

On Friday, UK retail sales figures drew investor interest. In October, UK retail sales unexpectedly fell by 0.3% after falling 1.1% in September. Core retail sales declined by 0.1% after declining by 1.3% in September. Economists forecast retail and core retail sales to increase by 0.3% and 0.4%, respectively.

According to the Office for National Statistics,

• Automotive fuel sales tumbled by 2.0% in October, while food store sales fell by 0.3%.
• There were reports of more cautious spending on alcohol and tobacco and specialist food stores, which registered 10.4% and 4.2% falls in sales.
• Non-food store sales slipped by 0.2%.
• Retailers attributed the fall in non-food store sales to living costs, a downward trend in footfall, and bad weather.
• Non-store retailing increased by 0.8%, partially recovering from a 2.4% slump in September.

The retail sales figures completed a full picture of the UK economy. Earlier in the week, UK wage growth and inflation numbers sent mixed signals to the Bank of England. Wage growth remained elevated, suggesting a positive outlook for consumer spending. In contrast, softer-than-expected inflation numbers suggested a weaker demand environment.

The latest retail sales report suggests consumers are tightening their belts. Significantly, the BoE may consider the softer-than-expected inflation and retail sales reports as reasons to begin discussing rate cuts.

GBP/USD Reaction to the UK Retail Sales Report

Before the UK retail sales figures, the GBP/USD rose to a high of $1.24222 before falling to a low of $1.24036.

However, in response to the UK retail sales figures, the GBP/USD fell from an opening price of $1.24118 to a low of $1.23801.

This morning, the GBP/USD was down 0.24% to $1.23841.

Next Up

Sir Dave Ramsden is on the BoE calendar to speak on Friday. Views on the UK economy, inflation, and interest rates need consideration.

The US housing sector will also be in focus along with Fed speakers. A marked deterioration in housing sector conditions could signal a hard landing. However, Fed speakers could have more influence on the global financial markets.

FOMC members Michael Barr, Austan Goolsbee, and Mary Daly are on the Calendar to speak. Reaction to the US CPI Report and retail sales figures would garner investor interest.