Retail sales in Great Britain fell by 0.4% in September, compared with expectations of a 0.1% decline. The ONS said warmer weather affected demand for autumn and winter clothing online, while supermarket sales also fell after increases in July and August.
However, August’s growth was revised up from 0.5% to 0.7%, and sales volumes increased by 0.7% over the third quarter. September’s fall therefore follows a stronger August than previously reported, with the amount of goods bought still rising overall during the quarter.
For Sterling, this adds a weaker spending figure to a week of stronger employment and higher inflation. Markets still expect the Bank of England to raise interest rates in November, but today’s release highlights the pressure on households. Attention now turns to the UK business surveys at 9.30am UK time, which will show how demand, employment and costs are developing in October. Stronger results could support the Pound, while a sharper slowdown could weaken it ahead of next week’s Budget.
In Europe, French business activity unexpectedly contracted in October, adding to concerns about the country’s outlook. Investors are already demanding higher returns to lend to the French government amid uncertainty over its finances and political situation. The weaker business figures add another source of pressure on the Euro ahead of next week’s European Central Bank decision.
The Dollar has recovered some ground this morning after yesterday’s fall. Concerns about the sustainability of US technology investment pushed government bond returns lower on Thursday, reducing support for the currency. Investors looking for safety favoured the Yen and Swiss Franc.
Yesterday’s US employment figures were firmer, with new applications for unemployment support falling to 194,000 from a revised 200,000. This suggests employers are still making relatively few job cuts, although it does not mean hiring is strengthening.
This afternoon brings US business surveys at 2.45pm UK time, followed by the University of Michigan’s final consumer sentiment report at 3pm. Markets will watch both activity and households’ inflation expectations. Stronger results could help the Dollar recover further, while weaker figures could add to concerns about growth ahead of next week’s Federal Reserve decision.