Sterling fell to its weakest level since the end of 2020, after a sharp drop in British retail sales highlighted the depth of the cost of living crisis, fueled by rising inflation.
Retail sales in the UK fell 1.4 percent, according to the National Bureau of Statistics, worse than the forecast of a 0.3 percent drop in a Reuters survey and the second consecutive monthly decline.
Figures that led many economists to predict that the Bank of England will raise interest rates less aggressively caused a 0.7% drop in the pound against the US dollar to $ 1.2939.
“Retail sales fell sharply in March with rising living costs, hitting consumer spending,” said Darren Morgan, director of economic statistics at ONS.
This is the first sign in the official data on the damage that high inflation has on consumer spending and the economy, said Thomas Pu, an economist at RSM. He also warned that “things are getting worse” in the next few months, as the cost of living crisis is likely to worsen in April, with an increase in energy bills and taxes.
Some data released by research firm GfK on Friday showed that consumer confidence in the UK fell to almost its lowest level since recordings began in April in April, reflecting the impact of the cost of living crisis.
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For many economists, the decline in both retail and consumer confidence adds pressure on the Bank of England for a more cautious approach to raising interest rates as the bank tries to curb accelerating inflation.
The figures “certainly rule out any remaining chance for the Monetary Policy Committee to raise the bank interest rate by 50 basis points next month, although a 25-basis increase still seems likely,” said Samuel Tombs, an economist at Pantheon Macroeconomics.
“Despite repeated surprises of rising inflation, we believe that the Bank of England is likely to be more cautious in raising interest rates than markets expect,” said James Smith, an economist at ING. “It is becoming increasingly difficult to see how consumer spending in the UK is avoiding a decline in the coming months.”
ONS data show that online sales are particularly affected due to lower levels of discretionary spending. They decreased by 7.9% in March compared to the previous month, the largest monthly decline since January 2001. The decline followed a significant contraction in February.
Fuel sales also fell sharply, by 3.8%, with evidence showing that some people have reduced non-essential travel after record high petrol prices.
Grocery sales fell 1.1% in March and fell each month since November as higher costs in pubs and restaurants, as Covid’s restrictions also eased the impact of rising food prices on spending on life. Costs in liquor stores also fell sharply by 11.3 percent.
Clothing sales fell 0.5%, although people returned to the office, while second-hand shops reported strong growth.
ONS data show that buyers have reduced only slightly the value of what they spent on the street, by 0.2%, but with the highest inflation rate in 30 years, the volume of goods they could buy has decreased. shrunk considerably.
Jackie Mulligan, founder of ShopAppy, a website for local producers, said that “for countless small independent retailers, March was relentless. The small businesses that are being built on the country’s main streets need our support more than ever. ”
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