GBP suffers in UK Retail sector crisis but surges on the prospect of Rate hikes. Consumers continue to tighten the purse strings as inflation continues to rise and real wages fall.
According to the Office for National Statistics (ONS) Retail Sales fell 1.2% in May, compared to the month before. This was worse than economists anticipated 1% decline. May’s growth - in quantity brought - for retail sales was at 0.9%. This is the slowest rate of growth the retail sector has seen in four years.
The current GBP/EUR exchange rate is 1.14484.
The GBP/USD rate is 1.27610 at the time of writing.
Inflation fuelled by Brexit has been climbing since the vote to leave the EU in June 2016. This push higher has eaten away at disposable household income levels, as a result of of raised costs of imports being passed down to consumers through increased pricing.
The shock results of last Friday's election has made the Brexit stance even more unclear and sent the pound further down. The added uncertainty of a hung parliament, with May failing to secure the majority of the votes has fuelled market uncertainty and in turn weighed on Sterling's value.
The Bank of England expects inflation to rise to 3% in the coming months. Although the level of inflation looks to cool later in the year, the current situation for UK households stays less than positive, with little prospect of pay growth picking up.
Due to this pressure on households and consumers lack of disposable income consequently, the economy is likely to suffer. To further this, big companies might be more cautious on hiring or pull back from investments during these uncertain times.
Despite the arguments for leaving the rates unchanged seeming more compelling in the current climate than the arguments to raise them, the BofE came closer to an interest rate hike today after three of the policy makers backed an increase. Five others voted to leave the rates the same, at 0.25%. The Pound quickly surged on this information.
With the UK economy so heavily reliant upon consumer spending, the Bank of England is likely to want to keep inflation levels manageable for the foreseeable future, despite the three votes to the contrary.