It Was Thrifty Shades Of Gray For The UK Last Month

It Was Thrifty Shades Of Gray For The UK Last Month
Stéphane Renevier, CFA

5 months ago2 mins

What’s going on here?

September’s worse-than-expected UK retail sales cast an ominous shadow over the British economy.

What does this mean?

Brits scraped back on nice-to-haves in September, spending nearly 1% less on in-store and online shopping than the same time last year – worse than analysts expected. Now, part of that’s because the weather’s been milder than normal, so fall jackets haven’t been switched for winter coats just yet. But this trend of cutting back is also a symptom of the wider economy: wages are rising at a slower pace, a lot of folk are out of work, businesses are struggling, and Brits are low on confidence. That’s a problem. Central banks want to fight inflation without bringing down the economy as collateral damage, and this data suggests that delicate balance hasn’t quite been struck.

UK retail sales
Source: Office for National Statistics

Why should I care?

For markets: It’s 50/50.

Inflation’s still holding its own, much to the dismay of central banks. And with the risk of triggering a recession still high, the Bank of England (BoE) is split ahead of its next meeting in November. Onlookers reckon the BoE could pause its 14-hike run, keeping rates at 5.25% – their highest point since 2008. But until the bank’s united in opinion, expectations are far from fact.

UK inflation vs interest rates
Source: Statista

The bigger picture: We’re all in the dark.

Even the savviest analyst or most gifted psychic will have struggled to predict the economy’s direction over the last year. Many brushed off inflation as a fleeting phase, while doomsayers were surprised by a resilient global economy that, so far, has swerved an all-out recession. That even has folk questioning whether interest rate hikes are capable of taming the beast, with the boldest hikes failing to scratch the surface. Thing is, there’s a high chance they’re just taking longer to change consumer behavior: remember, businesses and everyday folk were padded with pandemic-era loans and savings before price rises crept in.

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