The UK’s Office for National Statistics announced the monthly retail sales report on Friday. The data highlighted the retail sales to have contracted for the fifth consecutive month in December. Adding to the signs of a weaker economy, the probability of the UK’s central bank to opt for a rate cut at the end of January has increased further.
Retail Sales Dropped By 0.6% In December
In a previous estimate, analysts had expected the UK’s retail sales to expand by 0.5% in December. Noting a massive decline in retail sales by 0.6% last month, the data weighed heavily on Sterling in the forex market. In November, retail sales had dropped more aggressively by 0.8% as the uncertainty regarding Brexit and the UK’s general election on December 12th continued to weigh on the overall sentiment.
The Official for National Statistics also highlighted that the United Kingdom hasn’t posted an improvement in monthly retail sales report since July that marks the longest streak since 1996 when the record-keeping was initiated originally. The report further added that food sales in the UK dropped the sharpest in December in over three years.
Following the economic data on Friday, Sterling was seen losing traction in the forex market. GBP/USD lost almost 100 pips dropping from the daily high of 1.3115 to 1.3015. At the time of writing, the currency pair is trading at 1.3025.
Bank Of England To Cut Rates At The End Of January
In November and then again in December, two of the BoE’s policymakers out of a total of nine had voted in favor of monetary policy leniency. Earlier this month, three other policymakers including BoE’s Governor Mark Carney himself have highlighted the recent economic data is suggesting the need for a rate cut at the end of January.
According to economist Thomas Pugh of Capital Economics:
“December’s outright fall in retail sales, despite a potential boost from the lateness of Black Friday, does not bode well for GDP growth in December and could nudge the Monetary Policy Committee closer still to cutting rates at the end of the month. But the election and the removal of some uncertainty could represent a turning point for the economy. Indeed, there are signs that sentiment has already turned up. As a result, January might not be quite as bad.”
UK’s retail sales’ annual growth dropped by 0.9% that was significantly lower than all previous estimates.