Pound Hits Near Four Decade Low Versus US Dollar as Retail Sales Decline 1.60% in August

August retail sales in the United Kingdom declined at the fastest rate in eight months due to a growing cost-of-living problem and falling consumer optimism. The 1.6% loss was over three times the reduction projected by experts and illustrates the pressure on households caused by rising energy costs and inflation nearing a 40-year peak. Starting July 2021, all retail categories had a sales loss for the initial time.

After the report, the pound maintained its decline and was down 0.4% to $1.14. The government is reacting to the situation by introducing a £100 billion ($114 billion) stimulus program to prevent another spike in power and gas costs this winter. That may be sufficient to escape a recession, but households still expect months of misery due to steeply increasing food and clothing costs. The compression in real earnings has caused consumer optimism to plummet to an all-time low.

It also required many families to purchase fewer non-essential products in order to finance the necessities. This Monday, John Lewis Partnership Plc, a leading retailer in the United Kingdom, said that its first-half shortfall more than quadrupled compared to the same period last year. The company cited the “extraordinary cost-of-living issue” The internet shopping mall THG Plc said that profits would fall short of projections.

Given the continuing compression on salaries, we anticipate greater pressure on consumer expenditure over the next several months. Specific emphasis will be placed on discretionary expenditures, and customers are probably to opt for less expensive food brands wherever feasible.

August retail sales were 5.4% less than a year ago, marking the fifth consecutive year-over-year fall. With the exception of the early days of the Covid epidemic, the British High Street has not had such a negative trend in almost a decade. During the past month, UK retail stocks have fallen over 12%, making them one of the worst performing categories. Overall, the FTSE 350 Index has declined by 4.4%.

Third-quarter retail sales will almost certainly serve as a headwind on the economy. Only if September sees a 3.1% increase, sales will decline throughout the quarter. In an attempt to prevent a wage-price escalation, the Bank of England is anticipated to continue increasing benchmark rates, such as a potential 75 basis-point increase forthcoming week.