Retailers
report sales growth
Online discounts and the hot summer weather have encouraged an uplift in retail
sales, with the latest official statistics showing a rise in July and survey
data pointing to further growth in August and September.
Data released by the Office for National Statistics (ONS) revealed that total retail sales
volumes rose by 0.3% in July; this was the
first increase in three months and confounded economists’ expectations of a
small monthly decline. Growth was largely driven by a surge in online and mail
order sales, which recorded their sharpest rise since December.
July saw
Amazon hold its annual Prime Day promotion, although ONS did say that greater spending was seen across a number of online retailers, with sales figures boosted by ‘a range of offers
and promotions.’ The British Retail Consortium also noted that ‘the summer sunshine’ had provided a boost to the figures, with sales
of ‘summer clothing, air conditioning appliances and outdoor foods’ all
benefitting from record temperatures.
Evidence
from the latest CBI Distributive Trades Survey also suggests the retail sector enjoyed a further uplift in sales last month, with the net balance of retailers reporting year-on-year sales
growth jumping to +37 in August from -4 in July; this represents the
strongest reading in nine months. In addition, retailers said they expect to see
another rise in sales this month.
The CBI survey did, however, note an air of
pessimism when it comes to the future business
outlook. Other data released last month also highlighted growing concerns across the UK household sector, with
GfK’s long-running Consumer Confidence Index falling to a low of -44 in August. Measures of households’ assessment of
the general economic situation and their personal finances both declined last
month, which GfK said reflected ‘acute concerns as the cost-of-living soars.’
In early August, the largest increase in interest rates for more than a quarter of a century was sanctioned by the Bank of England
(BoE) as it continues its efforts to contain the rate of inflation.
At a meeting which concluded on 4 August, the BoE’s nine-member Monetary Policy Committee (MPC) voted by a
majority of eight to one to raise Bank Rate by half a percentage point to
1.75%. This was the sixth increase since
December and took rates to their highest level since late 2008.
Minutes to the meeting noted that inflationary pressures had ‘intensified
significantly’ since the previous meeting held in mid-June, largely due to the impact of Russia’s
invasion of Ukraine on energy prices. A readiness to ‘act forcefully’ to indications of more
persistent inflationary pressures was again reiterated, but the minutes also stressed that the MPC would assess its next move as events unfolded and that policy was ‘not on a
pre-set path.’
When announcing the
rate decision, the Bank also provided an update of its view on the
future path of inflation, warning that it now expects the
Consumer Prices Index (CPI) to peak at ‘just over 13%’ in the final quarter of this year. It then expects inflation to remain at ‘very elevated levels’ throughout
much of next year before returning to its target level of 2% in 2024.
Meanwhile,
the latest data released by ONS showed that soaring food costs pushed the rate of
inflation into double digits for the first time since 1982. In the 12 months to
July, the CPI rate jumped to 10.1%, a sharp increase from June’s 9.4% figure and above all forecasts submitted in a Reuters poll of economists. This rise further fuelled expectations of another interest rate hike when the MPC next convenes in mid-September.
Markets (Data
compiled by TOMD)
Global markets largely closed August in negative territory. Many indices
moved into the red at month end as investors digested hawkish comments from Federal Reserve
Chairman Jerome Powell, where he cautioned that the US Fed would act “forcefully”
to control inflation though it would result in “some pain to households
and businesses.” Inflation will require continued aggressive global
policy, with eurozone inflation data also weighing on market sentiment at month
end.
The Fed’s next
meeting, where interest rates will be addressed, takes place on 21 September, with
markets having several key economic reports to consider over the next few
weeks. Looking at US
markets, the Dow closed the month down 4.06% on 31,510.43. The tech-heavy Nasdaq, which tends to be more
sensitive to Fed policy, closed August on 11,816.20, down 4.64%.
In the UK, the FTSE
100 closed August down 1.88% on 7,284.15, while the midcap-focused FTSE 250
registered a loss of 5.46%. The AIM recorded a loss of 4.19% in the month. The Euro Stoxx 50 closed
the month down 5.15% on 3,517.25. In Japan, the Nikkei 225 closed
August on 28,091.53, up 1.04%.
On the foreign exchanges, sterling closed the month
at $1.16 against the US dollar. The euro closed at €1.15 against sterling and
at $1.00 against the US dollar.
Gold is currently trading at around $1,715 a troy ounce, a loss of 2.14% on the month. The hawkish Fed comments indicating more interest rate rises, combined with solid US labour statistics, impacted the gold price. Brent Crude closed the month trading at around $95 a barrel, a drop of around 9.5%. Oil prices traded lower as concerns over global economic growth and renewed restrictions in China weighed.
Despite economic output falling by less than feared in June, the UK economy still contracted over the second quarter as a whole, with experts typically predicting an increasingly gloomy outlook.
As expected, the latest growth statistics released by ONS revealed that output
fell in June, partly due to the month unusually containing two bank holidays to celebrate the Queen’s Platinum
Jubilee. However, a 0.6% contraction was less severe than the consensus 1.3% decline predicted
by economists in a Reuters poll. June’s figure did though mean the economy
shrank by 0.1% in the second quarter of this year.
Economists are divided over third quarter prospects, with some
predicting a second successive quarterly contraction – which would meet the
technical definition of a recession. Although others are forecasting a small rebound in growth between July
and September.
The BoE’s latest assessment predicts the UK
economy will next contract in the final quarter and then keep shrinking until
the end of 2023. While this would represent a relatively long downturn, the
Bank’s calculations suggest a 2.1% peak-to-trough fall in output, far less than
the economic hits from COVID and the 2008-09 global financial crisis.
Signs of cooling labour market
While the latest batch of employment statistics do suggest the overall picture
in the jobs market remains positive, there are early signs that things may be starting to cool.
Figures
released last month by ONS showed that the rate of unemployment in the three
months to June was unchanged at 3.8%, close to a half-century low. The data
also revealed further strong growth in the number of people in work – rising by
160,000 across the April to June period – although this increase was considerably less than the 256,000 rise analysts had predicted.
In terms of
job vacancies, the data revealed that the total fell by 19,800 in the May to July period. While this still
leaves the overall number of vacancies close to a record high at 1.274 million, it was the
first reported decline in this figure since mid-2020.
Survey evidence released early last month also points to signs of cooling
in the labour market. Although data from the latest UK Jobs Survey conducted by
KPMG, and the Recruitment and Employment Confederation, shows the jobs market ‘remains
solid,’ it also found that businesses are becoming more cautious, with the
slowest increases in both permanent staff appointments and temp billings for 17
months.
It is
important to take professional advice before making any decision relating to
your personal finances. Information within this document is based on our
current understanding and can be subject to change without notice and the
accuracy and completeness of the information cannot be guaranteed. It does not
provide individual tailored investment advice and is for guidance only. Some
rules may vary in different parts of the UK. We cannot assume legal liability
for any errors or omissions it might contain. Levels and bases of, and reliefs
from, taxation are those currently applying or proposed and are subject to
change; their value depends on the individual circumstances of the investor. No
part of this document may be reproduced in any manner without prior permission.
