Office for National Statistics (ONS) data showed retail sales volumes shifted from flat growth the previous month to a fall of 1.6% in July – the biggest monthly fall since December last year. Economists had expected a 0.5% drop as the highest inflation rates in 40 years continue to squeeze consumer spending, with prices of food and other goods and services reflecting rising energy and commodity costs in the wake of pandemic and Russia’s invasion of Ukraine. The ONS said: “All the main sectors – food shops, non-food shops, non-shop retail and fuel – fell during the month.” “This last happened in July 2021, when all legal (COVID) restrictions on hospitality were lifted,” he added. The value of sales also fell. The tremendous performance came as more people traveled abroad for their summer holidays and despite good weather. It has raised fears that falling consumer spending – the main driver of the UK economy – will push the country into recession. The retail sales data pushed the pound down a cent against the US dollar to hit a fresh 37-year low of $1.13. Sterling has been under pressure from a strong US currency this summer, but dire growth readings have contributed to the slide. Retailers will be hoping the government’s energy price guarantee, which will cap bills through a wholesale price cap from October, will ease some of the pressure on wallets heading into the key Christmas period. Use Chrome browser for more accessible video player 1:18 The Truss plan: Economy, energy and the NHS The guarantee, set at £2,500 on average, will keep gas and electricity bills at their current annual level of just under £2,000 thanks to £400 per household help announced by former chancellor Rishi Sunak and the interim cut in green fees. within energy bills. The chairman of the John Lewis Partnership, Dame Sharon White, hoped on Thursday that the unprecedented intervention would prove a “game changer” for the business, which includes Waitrose supermarkets, over the winter months. The Bank of England, which last month predicted a recession lasting more than a year from this autumn, has its first chance next week to reflect the potential impact of the energy price guarantee on interest rate talks. It is expected to at least cut its near-term inflation expectations because the energy boost, which will also be extended to businesses, will mean bills will not be as high as they should be in the coming months. But economists still expect the Bank to raise interest rates by a further 50 basis points to 2.25% to try to keep a lid on core inflation. Use Chrome browser for more accessible video player 2:25 The UK could avoid a deep recession That would add more pain to holders of tracker and standard variable rate mortgages, giving those families less money to spend in the broader economy. Walid Koudmani, chief market analyst at stockbroker XTB, said of sterling’s latest plunge: “While dollar strength is certainly playing into it with the Fed taking significant steps to curb inflation, the precarious state in which the UK economy finds itself. , further highlighted by today’s retail sales report, doesn’t help either. “The Bank of England has a tough job ahead of it as it has to find the balance between managing inflation, supporting the currency, while not further affecting the overall economy.”
