Pound Plunges After UK Retail Sales Crash Most Since 2011

The post-Brexit euphoria appears to have abruptly vanished in December as UK core retail sales plunged 2.0% month-over-month, the biggest drop since May 2011. Ironically, this crack in the 'Brexit Boom' occurred an hour before U.K. Chancellor of the Exchequer Philip Hammond told a Davos gathering on Friday that an inflation pickup will put a damper on consumers this year. Cable tumbled on the print (not helped by London home pre-sales plunging).

As Bloomberg reports, possible explanations include price increases and consumers scaling back purchases after taking advantage of Black Friday discounts the previous month. Mild weather also probably affected clothing sales -- down 3.7 percent on the month -- though the weakness in the sector was broad-based, with turnover at food, household goods and department stores all falling.

The decline could be a portent of 2017, with the pound’s 17 percent drop since the June vote to leave the European Union boosting import costs and fueling a sharp upturn of inflation. That means consumers, who have weathered the Brexit vote so far, now face a squeeze that will eat into real incomes. That could potentially hurt growth in an economy that relies heavily on their enthusiasm for spending.

No matter the driver, the result is clear - cable tumbled...

 

The price of retail goods sold in December, as measured by the deflator, increased on an annual basis by 0.9 percent, the most in three years. Consumer-price inflation jumped to 1.6 percent, according to a report earlier this week, and is forecast to keep climbing through 2017. While most surveys see it around 3 percent by the end of the year, some expect a figure closer to 4 percent. “This is likely to be the theme for the rest of the year -- higher prices will reduce disposable income and hurt consumer spending growth,” said Alan Clarke, an economist at Scotiabank.

But that was not the only bad news to spoil the Brexit bravado, as Bloomberg reports sales of London homes under construction last year dropped to the lowest level since 2012, leaving developers with a record number of unsold properties.

Purchases of homes currently being built fell 22 percent to 20,695 from a year earlier, according to a report by Molior London seen by Bloomberg. The number of unsold properties that are under construction surged 14 percent to 25,139 units in the period, the highest since the researcher began collating data in 2009, the report shows. A spokesman for Molior declined to comment.

 

London’s residential real estate market is being buffeted by headwinds ranging from near-record prices to higher sales taxes and uncertainty surrounding the terms of the U.K.’s exit from the European Union. Home values in the British capital fell for eight consecutive months through November with central luxury properties declining the most, LSL Property Services Plc and Acadata said this month.

 

A record 24,817 homes were completed last year and, based on current sales rates, it will take 1.3 years to sell the properties that have yet to find a buyer, the Molior report shows. The measure, which assumes no further stock is completed, stood at 0.8 years at the end of 2015.

“Stubborn affordability issues still persist in London” and are affecting the wider market, said Faisal Durrani, head of research at broker Cluttons LLP. “The drop in the pound is something that international buyers are watching, but those investors focus on London’s most prime locations.”

And that is weighing on the FTSE 100...