- UK retail sales volumes fell 1.6% in August, significantly worse than forecast
- World Bank warns that efforts to tackle inflation could cause a global recession
- Oil prices set for third week of declines, Brent at $91 a barrel
Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown:
“UK retail sales have seen their biggest decline so far this year, dropping 1.6% compared to a 0.4% increase in July. This is markedly worse than forecasts of a 0.5% fall, and indicates rising prices and the cost of living crisis is stopping consumers from reaching for their purse when it comes to extra spending. There is also the possibility these figures suggest the UK is already in recession. Sales were down in all key sectors, including food, fuel and non-food stores. There was a notable decline in sports equipment, furniture and lighting. This gives an indication of the types of items consumers push to the bottom of their priority list in difficult times, and has some tough connotations for members of these industries. It’s already been a tough week for the likes of DFS who echoed this sentiment in a profit warning on Thursday.
While some trends have been echoed in the US, like weak furniture spending, there is a stark difference appearing. Retail sales in the US unexpectedly went up 0.3% in August from July, following a revised 0.4% fall in the previous month and beating forecasts of a flat reading. Falling petrol prices allowed consumers to buy other items it seems, and the more resilient consumer base has increased the likelihood of further, perhaps more aggressive, interest rate hikes in the country. That raises a serious question for UK policy makers. The UK consumer base is weaker, meaning it may be deemed too risky to inflate rates at the same pace as our trans-Atlantic friends, which would keep up the downwards pressure on the pound.
This coincides in with a fresh warning from the World Bank, which has said that rapid monetary tightening could cause a recession. The bank highlighted that because the new tightening polices are synchronised across a number of countries, the effects of these interest rates could be compounded and magnified, leading to a steeper-than-expected slowdown in global growth. It comes as China’s industrial production beat forecasts, increasing 4.2% year-on-year, which would usually partially allay fears of a global economic meltdown. Fear has won out though, with this positive data set unable to stop Asian stocks slipping in their latest trading session.
Wider concerns of a recession coming through the pipeline is the core driver behind the weakness in the oil price, with Brent crude heading for its third straight week of declines. The price is hovering around $91 a barrel, as questions of demand mean the market could be faced with a glut of supply if economic conditions sour sharply. Standard Chartered has issued a warning to say the global oil market swung into a large surplus this quarter, while China is considering allowing more fuel exports, which could suggest weak domestic consumption. All-told, this fast-moving situation is all pointing to the idea we may have reached peak prices for this cycle, but that of course can change in a heartbeat, given the highly uncertain geopolitical backdrop.”
