HomeBBC NEWSBusinessPound hits new 37-year low as retail sales slide

    Pound hits new 37-year low as retail sales slide


    The pound fell to a 37-year low against the U.S. dollar as the rising cost of living continued to hit households, with data showing that U.K. retail sales fell sharply in August.

    Sales fell 1.6 percent more than expected, raising new concerns about economic conditions.

    Sales in all retail sectors fell in August as households cut back on spending due to higher prices.

    One analyst said the data showed the U.K. had fallen into recession.

    After the retail sales data were released, the pound fell more than 1 percent against the dollar to $1.1351, the lowest since 1985. The pound then rallied, climbing above $1.14.

    The pound has been falling against the dollar for most of the year, partly due to the strength of the dollar. A weaker pound means that Britons traveling abroad will find they don’t spend as much.

    This comes at a time when U.K. inflation, the rate at which prices are rising, is at a nearly 40-year high, although it slipped to 9.9 percent from 10.1 percent in July.

    The Bank of England predicts that the U.K. will fall into recession by the end of the year and is expected to continue raising interest rates to curb inflation.

    Olivia Cross, an assistant economist at Capital Economics, said the August retail sales data supported the consultancy’s view that the U.K. economy “has fallen into recession.

    A recession is defined as two or three consecutive months of economic contraction.

    “With the cost of living crisis hitting hard in the coming months, retail sales are likely to continue to struggle,” Ms. Cross said.

    “But despite this, the Bank of England will still have to raise interest rates in a big way.”

    Rising prices and the upcoming increase in energy costs in October are causing households to tighten their belts when it comes to spending.

    The government announced the Energy Price Guarantee last week to help people pay their energy bills. The support will cap a typical household’s annual energy bill at £2,500 for two years.

    Before the government intervenes, a typical energy bill will rise to £3,549 a year, and even higher by 2023.

    Ms. Cross of Capital Economics said that any recession would be “smaller and shorter” than previously expected because of the intervention.

    Martyn Beck, chief economic adviser at EY Item Club, said the government’s support “should ease the income squeeze and boost consumer sentiment, suggesting that the outlook for retailers is not as pessimistic as it should be”.

    “However, real household incomes are still set to fall sharply over the next 12 months or so,” he added.

    The government is expected to set out the estimated cost of plans to limit energy prices in its “mini-budget” next Friday, as well as tax cuts promised by Chancellor Liz Truss to boost the economy.

    2px presentational grey line

    The pound’s fall to a new 37-year low against the dollar today is not an isolated event. The pound also touched its lowest level against the euro in almost a year and a half.

    As a result, the pound continues to face specific additional pressure in international markets, despite the overall trend of a stronger dollar.

    This morning’s triggers were well below the expected retail sales data. But markets await next Friday and the scale of borrowing needed for the government’s energy plan and tax cuts.

    The eurozone is also heading into recession, but such companies have little comfort.

    The risk is that a weaker currency will make imports of essential goods from energy to food more expensive, prolonging a period of hyperinflation. If the UK’s nearest trading partner also falls into recession, exporters will not gain significantly from a weaker pound.

    2px presentational grey line

    The Office for National Statistics (ONS) said the decline in retail sales has continued to fall since the summer of 2021, when all Covid restrictions were lifted. the August drop was the largest year-on-year decline since December 2021.

    The Office for National Statistics said sales of food, online, non-food and fuel all fell during the month.

    Supermarket sales also fell by 0.9 percent in August, but sales of alcohol and tobacco rose by 6.3 percent.

    “Feedback from retailers suggests that consumers are cutting back on spending due to price rises and affordability issues,” the ONS said.

    AJ Bell financial analyst Danni Hewson said people are “clearly thinking seriously about what they’re spending their money on.”

    “It just doesn’t stretch as far as it used to, where necessities had to come first. But even necessities cost more, and with the specter of unmanageable fuel costs looming, adults are doing the only thing they can do to cut back,” she said.

    Image caption,Shoppers are shunning “big ticket” purchases, such as washing machines

    According to the Office for National Statistics, department store sales fell sharply in August – 2.7% – while clothing store sales were down 0.6%.

    Ms. Hewson of AJ Bell said, “Big ticket purchases have been delayed and this is unlikely to change in the coming months.”

    On Thursday, John Lewis revealed that while its shopper numbers are higher than last year, customers are spending less and avoiding buying as many “big-ticket” items as possible.

    The department store and its supermarket chain Waitrose reported a £99 million loss for the first half of its trading year. waitrose said its sales were down 5 percent on last year and basket sizes had shrunk by “nearly a fifth.

    Food prices have been rising around the world since Russia invaded Ukraine, one of the main factors driving up prices at supermarket tills.

    Meanwhile, online retail sales fell from 26.3 percent in July to 25.7 percent in August, but were still well above pre-epidemic levels.

    Latest articles

    How the interest rate rise might affect you

    Global uncertainty is directly affecting our financial position in the UK, with prices rising...

    What is the UK inflation rate and why is the cost of living rising?

    The cost of living is rising at the fastest rate in nearly 40 years,...

    Starlink: Why is Elon Musk launching thousands of satellites?

    Elon Musk's SpaceX has been putting thousands of satellites into orbit. Many people say...

    When are the £400 energy rebate and second cost-of-living payments due?

    From October 1, a typical household's energy bill will be limited to £2,500 for...