fundamental alert

U.K. Retail Sales Falls For Second Month as Employment Opportunities Falter

Thursday, 20 November 2008 08:45:41 GMT  |  DailyFX Research

U.K. October retail sales yet again came in better than expected, falling just 0.1% m/m compared to a market median estimate for a 0.8% m/m drop. Meanwhile, the September reading was revised to -0.5% from -0.4%. This pushed the y/y rate up to 1.9% in October (median 1.5%) from a revised 1.7% reading in September (1.8% previously). The ONS data hence continue to show a discrepancy to anecdotal and survey data, which has indicated a more severe downturn to retail sales. However, given depressed consumer confidence, falling house prices and the outlook for a slacker labor market, the retail sales sector is likely to suffer next year.
Meanwhile, British Pound (GBP) experienced volatile trade, with GBP/USD and EUR/GBP both reversing overnight moves. Cable started the European session close to 1.5000, but came under pressure in line with Europe to trade down to 1.4815 lows before buying interest came in. The pair reclaimed 1.4900 briefly on thin trade and reports of ongoing interest to buy on dips. A better than expected U.K. retail sales number was noted, with October showing only a 0.1% decline versus a market consensus of -0.9%. However, ONS data is notoriously volatile and should not detract from the broader trend of weakening consumer demand. Elsewhere, EUR/GBP rallied sharply after it recorded 0.8334 lows in early Europe and traded as high as 0.8437 on macro account demand and general repositioning by sterling shorts via the cross. Cable's inability to sustain a move lower has seen EUR/GBP as a more sustainable option for sterling bears.

In addition, U.K. October public finances were mixed, with net borrowing up GBP 1.38 bln, worse than the 0.8 bln market median estimate, while net cash requirement was -4.91 bln compared to a market median for -2.50 bln. This was the first time net borrowing didn't show a negative figure, i.e. net repayment, for the month of October since 1994, highlighting the need for the Treasury to revise up its net borrowing estimates significantly. Meanwhile, M4 money supply, also released this morning, showed a surge of 2.3% m/m in October, pushing the annual rate up to 15.1% from 12.6% in September. However, we do not believe money supply growth will hinder the BoE from cutting the repo rate by 50 bp next month.

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