Gloomy picture of UK economy: Sterling KO, retail sales down and government bonds higher
Sterling ended trading at $1.12 on Friday, after recovering on Thursday after Prime Minister Liz Truss’ resignation was announced on Thursday. However, new numbers painted a bleak picture of the UK economy.
The pound’s volatility came after official figures showed government bonds rose to the second-highest September on record. People are now shopping less than before the pandemic, according to the Office For National Statistics (ONS).
Retail sales fell more-than-expected last month, falling 1.4% and continuing August’s decline, official figures showed.
The pound’s recent slide comes after a period of volatile trading in the currency. Government borrowing costs also rose on Friday.
A fall in the US dollar against a number of currencies late Friday helped the pound regain some ground.
Jane Foley, a currency strategist at Rabobank, said many of the sterling’s moves are being driven by investors reacting to political and economic uncertainty in the UK, as well as negative economic data.
“While sterling rallied yesterday on the back of Truss’s resignation, I think investors today have realized that this is no guarantee that we will get a market-friendly outcome from the Conservative leadership contest,” she said.
Chancellor Jeremy Hunt is due to announce spending and tax plans in his economic plan on October 31, which have been confirmed by the Treasury Department, although there are reports the leadership race could be delayed.
Ms Foley said that uncertainty also weighed on the pound.
A fall in the pound increases the price of goods and services imported into the UK from overseas – because if the pound is weak against the dollar or euro, for example, it will cost UK businesses more to buy things like food, raw materials or parts from the UK Abroad.
A weaker pound can also push up rising costs if businesses choose to pass higher prices on to customers. For people planning a trip abroad, changes in the pound affect how far their money goes abroad.
Likewise, inflation rose to 10.1% last month and is expected to rise further. The economic statistics office ONS said all types of stores saw sales fall, with grocery stores being particularly hard hit.
The UK is borrowing billions of pounds to limit the rise in energy bills for households and businesses.
Borrowing – the difference between spending and tax receipts – was £20 billion last month, up £2.2 billion from a year earlier, the Office for National Statistics (ONS) said.
This is the second-highest borrowing in September since monthly records began in 1993, according to the ONS.
However, economists warned that the national debt will continue to rise in the coming months.
The Office For Budget Responsibility (OBR) provides independent forecasts of how government decisions on things like taxes and spending will affect borrowing and growth.