Amidst continuing Brexit uncertainty, there was some extremely positive news from the UK yesterday in the form of retail sales. Analysts had predicted that sales would slip to -0.2% in August, but they actually increased by 0.3% from an upwardly revised 0.9% in July. The news was received warmly by investors and the pound promptly strengthened against the dollar.
Later in the day, we saw European leaders give unexpectedly strong criticism of the UK Brexit proposals, before Theresa May countered by suggesting that it was a negotiating tactic. Here, it is probably worth pointing out what might be obvious to some, but not to others: both the UK and EU must be seen to be playing hardball. The UK must show that it won’t be cowed, while Europe must show that withdrawing from the EU is not a straightforward process (as they do not want others to follow suit). Still, the fact remains that time is running out to agree a deal and you do have to wonder when the mind games will stop and an agreement is reached.
The only release of note today is the public sector net borrowing figures for August. Last time around, the budget surplus widened to £2.87 billion from £1.85 billion in July of last year. It was the highest surplus for the month of July since 2000. Today, the markets are expecting it to fall to a deficit of £2.85 billion, but with so many releases surprising us this week, it wouldn’t be all that surprising to be surprised – if you see what I mean.