If there were ever any lingering hopes that the UK economy avoided a contraction in Q4 2012, this morning’s awful UK retail sales figure should have done enough to put them to bed. The figures confirmed that retail sales actually contracted in December (December!) by 0.1%, instead of the meagre 0.2% growth that was expected. This means that over Q4 as a whole, retail sales contracted by a whopping 0.6%.
It doesn’t come as much of a surprise that online sales still did well over December, while there was plenty of demand for fuel, while clothing sales at least avoided a drop. However, food and household goods did very poorly indeed.
As a result, sterling has taken a pounding (excuse the pun) in recent sessions but today has been all about losses against the US dollar. Sterling has dropped below $1.59 today, which represents a two-month low.
With the UK GDP figure for Q4 likely to confirm negative growth next Friday (Jan 25), it’s hard to see where sterling is going to attract investment from in the near-term. That said, we still think that most of the weakness in the UK economy has been priced into the pound by now. Let’s just hope that the snowy weather passes quickly because the UK economy needs to be operating at full capacity to avoid another contraction in Q1 2013, which would leave the UK in a dreaded triple-dip recession. On a brighter note, reports from the high street suggest the January sales are going well – there is hope!
Richard Driver
Currency Analyst
Caxton FX
