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Pound falls to weakest level since 2020 as UK retail sales fall

By on April 22, 2022 0

The pound fell to its weakest level since the end of 2020 after a sharp drop in British retail sales underscored the depth of the cost of living crisis fueled by soaring inflation.

Britain’s retail sales volume fell 1.4%, the Office for National Statistics said, worse than the 0.3% drop predicted in a Reuters poll and the second consecutive monthly decline.

The figures, which prompted many economists to predict the Bank of England would raise interest rates less aggressively, sparked a 0.7% decline in the pound against the US dollar to $1.2939. .

“Retail sales fell noticeably in March as the rising cost of living hit consumer spending,” said Darren Morgan, director of economic statistics at the ONS.

This is the first sign in official data of the consequences of high inflation on consumer spending and the economy, noted Thomas Pugh, an economist at consultancy RSM. He also warned that “there is worse to come” over the next few months as the cost of living crisis is likely to worsen in April, with energy bills and taxes rising.

Separate data released by research firm GfK on Friday showed that in April UK consumer confidence had plunged to near historic lows since records began in 1974, reflecting the impact of the cost of living crisis. .

Falling retail sales and consumer confidence are adding pressure on the Bank of England for a more cautious approach to rate hikes as the bank tries to rein in accelerating inflation, many economists say. .

The data “surely negates any remaining chance that the Monetary Policy Committee could raise the Bank Rate by 50 basis points next month, although a 25 basis point hike still looks likely,” said Samuel Tombs, economist at Pantheon Macroeconomics.

“Despite repeated upside inflation surprises, we believe the Bank of England is likely to be more cautious in rate hikes than markets are expecting,” echoed James Smith, economist at ING. “It is becoming increasingly difficult to see how UK consumer spending avoids a slowdown over the next few months.”

Data from the ONS showed that online sales have been hit particularly hard due to lower discretionary spending. They slid 7.9% in March from the previous month, the largest monthly decline since January 2001. This decline followed a substantial contraction in February.

Fuel sales also fell substantially, by 3.8%, with evidence suggesting some people cut non-essential journeys in the wake of record petrol prices.

Grocery store sales volume fell 1.1% in March and has fallen every month since last November due to higher spending in pubs and restaurants, Covid restrictions eased and the impact of rising food prices on the cost of living. Spending at liquor stores also fell sharply by 11.3%.

Clothing sales fell 0.5% despite people returning to the office, while thrift stores posted strong growth.

ONS data showed shoppers were only marginally reducing the value of what they spent on the high street, down 0.2%, but with inflation at the fastest pace in 30 years, the volume of goods that they were able to buy decreased considerably.

Jackie Mulligan, founder of ShopAppy, a website for local growers, said “For countless small independent retailers, March has been an unforgiving month. Small businesses lining high streets across the country need more than ever. of our support.