Sterling loses ground after Retail Sales data missed expectations

GBP

Sterling lost some of its recent momentum this morning as UK Retail Sales data fell below market expectations.

According to data released by the Office for National Statistics, UK Retail Sales contracted by 0.9% year on year for December short of forecasts of 3.4% growth. The month on month figure also showed a greater contraction than economists had initially forecast to reveal a decline of 3.7%. According to the ONS the reintroduction of Plan B measures and fears regarding the Omicron variant kept consumers at home during the December period.

In addition to this, consumer confidence slumped to its lowest level since February 2021, falling four points to -19. The decline is a result of consumers being less optimistic about their own financial position as a result of rising taxes, inflation, energy costs and interest rates.

There is a risk to Sterling here if weakening consumer confidence results in less spending. We could see inflation fall in the UK, which in turn could undermine the need for interest rate hikes currently priced in at four this year. This scenario was acknowledged by Bank of England Governor Bailey on Wednesday who stated that aside from rising interest rates, growing costs pressure in the UK could act as another channel to force inflation lower.

Key announcements

00:00 – GBP – GFK consumer confidence – Expected -15 Actual -19
7:00 – GBP- Retail Sales MoM – Expected -0.6% Actual -3.7%
12:30 – EUR – ECB President Lagarde’s speech
15:00 – EUR – Consumer confidence – Expected -9 Previous -8.3