UK retail sales plunged by -1.4% in March, hurt by declining consumer confidence, as well as a sharp fall in fuel sales as the rising cost of living prompted consumers to pare back non-essential spending, and drive their cars less. Not only that but we had downward revisions to the February numbers, from -0.3% to -0.5%.
In cutting back on their spending, consumers will also have had one eye on the upcoming surge in energy bills, as well as other price rises, which will have hit their wallets in April.
We also can’t forget to mention the fiscal own goal of the Chancellor of the Exchequer Rishi Sunak in going through with his National Insurance tax hikes, against a chorus of voices urging him to defer them. He can’t say he wasn’t warned.
It is true that he has taken some measures to alleviate the hit to people’s finances, but it is very much the fiscal equivalent of tinkering around the edges, and points to a very challenging few months for consumers, exacerbated by tax rises, which could and should have been postponed.
However, this is spun, this consumer slowdown is very much one of the government’s own makings and is likely to make for a difficult summer for business and consumers alike.
Today’s numbers could also play into the calculus around next month’s Bank of England rate decision with the prospect that we could get a split between those members who may want to go down the 50bps rate hike route, and those who would prefer to hike by 25bps. The central bank is facing an unenviable task this summer, facing an inflation problem that it is behind the curve on, and having to consider raising rates further into the teeth of an economic slowdown.
With consumer confidence levels back close to levels last seen in July 2008, the likelihood of further declines in consumer spending looks high, even as the warmer weather helps to reduce energy usage as we head into the summer.
Until we get some further clarity on what the Bank of England might do next month in terms of outlining a policy response, the pound could well remain under pressure, with the recent lows at 1.2970 likely to give way to a potential move towards 1.2800. This has become much more likely given the perception that the Federal Reserve seems more determined to squeeze down on inflation much harder.
UK gilt yields having rallied hard yesterday, have slipped back this morning as markets reassess the Bank of England's ability to hike aggressively in the coming months.