Sterling fell more than 1 percent against the currency to $1.1351, its lowest level since 1985, partly reflecting broader dollar strength as well as specific concerns about the outlook for Britain. On the 30th anniversary of Black Wednesday, when the UK left the European Exchange Rate Mechanism, the pound also hit a 17-month low against the euro, with €1 worth 87.66p. It came as the latest official figures showed cash-strapped consumers cut spending more than expected in August, when the volume of retail sales in Great Britain fell by 1.6%. Economists had forecast a more modest 0.5% decline. The sharp fall in sales came after an upwardly revised 0.4% rise in July, which appears to be a temporary bounce back from the Queen’s platinum jubilee celebrations in June. The fall in sales last month was broad-based, with petrol stations, supermarkets, clothing and furniture stores all falling, according to the Office for National Statistics. Retail graphic The last time this happened was in July 2021, when all legal Covid-related restrictions on hospitality were lifted and people were directed to bars and restaurants. The ONS said “rising prices and the cost of living” had hit retail sales in Great Britain and economists warned there were signs of an economy already in recession. Olivia Cross, economist at consultancy Capital Economics, said that while she expected the UK recession to be shorter and milder following the government’s £150bn freeze plan, all indicators showed an economic contraction had already begun . He said: “The 1.6% fall in retail sales volume in August supports our view that the economy is already in recession. Retail sales will likely continue to struggle as the cost of living crisis hits harder in the coming months. However, the Bank of England will have to raise interest rates aggressively.” Capital Economics said the extra £150bn pumped into the economy would force the Bank to add another percentage point to rates from its previous estimate, meaning it expects the Bank’s key rate to jump from its current level 1.75% to 4%, adding more pain for those with mortgages. Martin Beck, chief economic adviser at EY Item Club, said: “Real household incomes remain on track to fall significantly over the next 12 months or so. And with unemployment likely to rise, if modestly by the standards of past recessions, and the geopolitical outlook also fraught with uncertainty, confidence is unlikely to see much of a revival. “Thus, the slump that retailers are currently in is likely to persist through the rest of this year and into 2023.” To highlight the extent of the recession, online sales fell to 25.7% of total sales in August 2022 from 26.3% in July 2022. although online transactions remain significantly above pre-coronavirus levels levels of 19.8%. Sales at supermarkets and other food outlets fell 0.8% in August, leaving them 1.4% below their pre-pandemic levels in February 2020. Subscribe to Business Today Get ready for the business day – we’ll point you to all the business news and analysis you need every morning Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our website and Google’s Privacy Policy and Terms of Service apply. Gasoline and diesel sales fell 1.7% despite falling prices. Sales at department stores fell 2.7%, while home goods stores fell 1.1%, mainly due to declines in furniture and lighting stores. Feedback from retailers suggests consumers are cutting back on spending after a broad-based price hike. However, sales of alcohol and tobacco rose by 6.3%. “Shoppers are simply buying less to compensate for price increases,” said Lisa Hooker, industry leader for consumer markets at PwC. He said this was a concern for retailers as they approached the crucial Christmas shopping period. For the first time, grocery sales volumes, stripping out the impact of inflation, actually fell below pre-pandemic levels, showing shoppers are spending less and being more careful about what they put in their carts. He added: “As we approach the crucial ‘golden quarter’ in the run-up to Christmas, retailers will be looking with anticipation to the outcome of next week’s mini-budget. “Confirmation of an energy price cap and the possibility of tax cuts may bolster faltering consumer spending, but businesses will also look for help to moderate their own rising utility costs. This is on top of the input cost inflation and wage increases they already have to deal with.”
