UK Retail Sales Fall by 0.9% in September, Sending Recession Signals

Highlights

• UK retail sales fell by 0.9% in September vs. expectations of a 0.2% decline.
• Quarterly readings also disappointed, raising the prospects of a UK economic recession.
• Next Up: FOMC Members Patrick Harkin and Loretta Mester.

UK Retail Sales

UK retail sales declined by 0.9% in September after rising by 0.4% in August. Retail sales ex-fuel slid by 1.0% vs. +0.6% in August. Economists forecast retail sales and retail sales ex-fuel to fall by 0.2% and 0.4%, respectively.

According to the Office for National Statistics,

• Non-food store sales volumes fell by 1.9%. Retailers attributed the fall to higher living costs and warm weather.
• Non-store retailing declined by 2.2%.
• However, food store sales increased by 0.2%, with automotive fuel sales rising by 0.8%.
• In the third quarter, retail sales were down 0.8% compared with the previous quarter.

The larger-than-expected fall in retail sales supports increasing fear of a UK economic recession. An elevated interest rate environment has affected the UK housing market and consumer sentiment. Sticky inflation and softer wage growth combined with the housing sector woes suggest a pullback in consumption. UK private consumption contributes over 60% to the UK economy.

Notably, the retail sales figures may ease pressure on the Bank of England to raise interest rates. Softer wage growth may force consumers to cut spending on non-essential items, easing demand-driven inflationary pressures.

GBP/USD Reaction to the UK Retail Sales Report

Before the retail sales report, the GBP/USD rose to a high of $1.21459 before declining to a low of $1.21178.

However, in response to the retail sales figures, the GBP/USD rose to a high of $1.21281 before sliding to a low of $1.21088.

This morning, the GBP/USD was down 0.24% to $1.21140.

Next Up

FOMC members Patrick Harkin and Loretta Mester are on the calendar to speak. Dovish outlooks toward Fed interest rate moves could impact the buying appetite for the US dollar.

In recent speeches, Patrick Harker favored leaving interest rates unchanged at the next meeting. There are no US economic indicators for investors to consider on Friday.