There was some relief for sterling yesterday, with another day of some stability against the euro and US dollar. However, this morning’s unexpected drop in retail sales in December has started a downward trajectory once again.
The UK’s economic data now points more clearly to an interest rate cut at the Bank of England’s next meeting on 6th February.
Yesterday we got a reading for Gross Domestic Product (GDP) in the UK, which revealed a 0.1% improvement in the economy in November, but lower than expected. It takes the three-month average to zero growth. Wednesday’s core inflation result declined to 3.2%, still well above the 2% target but lower than expected too. Even so, there is a word for inflation in a period of stagnant growth: stagflation, and it’s a word that politicians are terrified of.
However, there were some bright spots amongst the data yesterday. The yield on 10-year gilts dipped further from its recent 16-year high, there was a boost in pub and restaurant sales. In housing, the RICS House Price Balance showed that British chartered surveyors are more bullish about growth in the UK housing market than at any time since September 2022.
This morning’s reading for retail sales from the Office for National Statistics showed a drop of 0.3% month-on-month in December, compared to a predicted 0.4% growth.
Across the Atlantic, retail sales in the USA were also disappointing in December, growing just 0.4%. Food sales were particularly low, but clothing sales were well up. Indeed, the CEO of large shopping centre operator Land Sec said that spend was up 7.6% year on year, as consumers opted for shopping in bigger, better stores.
Ahead of the inauguration of President Trump on Monday, there was good news from some of his base, as the Philadelphia Fed Manufacturing Index showed its best figures since September 2020.
In Washington DC his pick for US Treasury Secretary, Scott Bessent, told US senators at his confirmation hearing that he would implement Trump’s tariff policy and push through tax cuts and less regulation for business. “We must ensure that the US dollar remains the world’s reserve currency,” he said. Bessent also warned of further sanctions against Russian oil, which led to the oil price rising.
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