Downbeat UK Retail Sales
Poor UK Retail Sales figures were released this morning, falling from +0.6% in
June to -1.2%, significantly lower than the -0.5% forecast. July's wet weather is
thought to have kept people indoors and out of the shops.
Retail sales are an indication of consumer spending, and the lower-than-
expected results could indicate the tightening of consumer budgets because of
the cost-of-living crisis. Low retail expenditure adds to the unhealthy picture of
the UK's economy, particularly considering the sluggish growth this year.
Although reduced retail sales could ease inflation pressures, this could cause
sterling weakness over the next few months.
However, the UK economy does appear resilient. Forecasts from banking group
ING predict UK GDP will rise to 0.3% in Q3 and 1.1% by Q4 this year. It also
expects better growth for the Eurozone this year, forecasting around 1%
growth over the next two quarters.
China concerns grow.
The People's Bank of China has stepped in to support the renminbi following a
poor run of data this week. The central bank unexpectedly raised interest rates
earlier in the week, which, combined with weakening exports and a lull in
consumer confidence, added to downward pressure on the currency.
According to reporting from the Financial Times, the state banks are buying
renminbi and selling dollars in an attempt to stabilise the currency.
Currency manipulation has long been a part of China's growth strategy.
Although the renminbi has been behaving more like a free-floating currency in
recent years, its volatility is limited compared to other advanced economies.
Reports at the beginning of the year seemed to suggest that the government
would step back its involvement in the currency when three state-run financial
newspapers in Shanghai and Beijing said that "investors should avoid Chinese
currency risk and adapt to higher foreign exchange volatility." We'll wait and
see how far the PBOC's support goes.
