Yesterday we noted the surge in cable following the stronger-than-expected Q3 GDP print of 0.4% Q/Q, above the 0.3% estimate. Afterwards, the market was calculating an 87% chance that the BoE would hike next week. Brown Brothers commented that:
The case against a hike is that inflation appears poised to peak shortly, the economy is softening, and real wages are falling. This may already be squeezing households, where an increase in the base rate is quickly passed through to households.
However, two reports from the UK retail sector might encourage some nervous MPC members to stand pat.
Bloomberg reports, U.K. retail sales are falling at the fastest pace since the depths of the recession in 2009 and worries about the housing market could exacerbate the weakness in consumer spending seen this year. The Confederation of British Industry said its measure of sales plunged to minus 36 in October - the lowest since March 2009 -- from a positive 42 in September. Sales for the time of the year were slightly below the usual seasonal rates, it said.
Rain Newton-Smith, CBI Chief Economist, blamed the weakness on higher inflation.
“It’s clear retailers are beginning to really feel the pinch from higher inflation. While retail sales can be volatile from month to month, the steep drop in sales in October echoes other recent data pointing to a marked softening in consumer demand.”
According to Bloomberg, faster inflation has put the squeeze on shoppers this year, and a separate report on Thursday suggests a cooling housing market could further dampen consumers’ enthusiasm for spending.
YouGov and the Centre for Economics and Business Research said while their headline sentiment measure rose this month, confidence in the housing market weakened. For Bank of England policy makers, all this may play into their thinking as they prepare for a crucial meeting next week.
While they’ve signalled that an interest-rate increase may be needed soon, a rate hike - even a small one - could also have an impact on spending habits, particularly for those concerned about the cost of their mortgage. Most U.K. property reports point to a property slowdown, with Halifax saying annual price growth has fallen to 4 percent from 10 percent in early 2016. According to Acadata and LSL, London house prices may be falling at their fastest pace since the financial crisis.
“The downtick in the house value measures is a concern,” said Nina Skero, head of macroeconomics at the CEBR.
“One’s perception of own home value has direct implications on their future willingness to spend.”
The CBI survey points to continued pressure on households from the mix of stronger price increase and sluggish wage growth. Official data this month showed stores had their worst quarter in four years in the three months through September. The John Lewis Partnership, owner of a grocery and department store chain, has seen sales growth slow by more than half this year.
The second report on the UK retail sector was from the British Retail Consortium which stated that retail employment dropped at the fastest rate since 2008.
From The Independent, UK retailers cut jobs over the past three months at the fastest rate since comparable records began in 2008, due to technological change and rising employment costs, the British Retail Consortium said on Thursday.
The BRC, which represents major retailers, said its members employed 3.0 per cent fewer staff in the third quarter of this year than during the same time in 2016, and total hours worked fell by 4.2 per cent year-on-year.
Both were the steepest falls since the BRC started collecting records in 2008, when Britain was in the middle of its sharpest recession in decades. This contrasts with the picture in the broader economy, where the unemployment rate is its lowest since 1975 and job creation has been strong, albeit partly at the expense of wages. Still, the BRC report chimed with a European Commission survey last month that showed British retailers’ expectations for employment sank to their lowest since late 2011.
“The pace of job reductions in the retail industry is gathering steam,” BRC chief executive Helen Dickinson said.
“Behind this shrinking of the workforce is both a technological revolution in retail, which is reducing demand for labour, and government policy, which is driving up the cost of employment,” she added.
Retail, which accounts for just under 10 per cent of jobs in Britain, has a lot of low-paid jobs that have been affected by rapid rises in the minimum wage in recent years, as well as a new government training levies and pension requirements.
So while Corbyn and May continue to battle, and the central bank is threatening rate-hikes, the nation's core is collapsing. One wonders whether hard, soft, or no Brexit would make any difference now...