GBP EUR Exchange Rate Slumps, Slump in UK Retail Sales to Persist?

October 19, 2017 - Written by John Cameron

STORY LINK GBP EUR Exchange Rate Slumps, Slump in UK Retail Sales to Persist?

The Pound Euro (GBP EUR) exchange rate fell half a cent this morning as UK retail sales declined faster than expected last month.

Pound (GBP) Plummets UK Retail Sales Tumble in September

Sterling sentiment took another heavy blow this morning as the latest UK retail figures reported a sharp decline in sales.

According to data released by the Office for National Statistics (ONS) retail sales nosedived from a healthy 0.9% to -0.8% in September, plummeting past expectations of a more modest decline to -0.1% and reaching its lowest levels since May.
The largest source of downwards pressure last month appeared to be in fuel and non-food sales as they fell 1.6% and 1.5% respectively.

The latest decline in sales comes as UK households come under increasing financial pressure as worker experience a persistent drop in real pay, with rapidly rising inflation outstripping anaemic wage growth in Britain for the last six months.
Howard Archer, chief economic advisor to the EY ITEM Club said;

‘Real income growth is currently negative, and it looks highly likely to remain so through the rest of 2017. The latest ONS data shows that total real average weekly earnings decreased by 0.3% in the three months to August.’

‘Furthermore, inflation rose to 3.0% in September from 2.9% in August, and it looks likely to hover at 3% or just above for the rest of 2017. Meanwhile, earnings growth was limited to 2.2% in the three months to August and is still showing little sign of picking up despite the unemployment rate coming down to 4.3%.’

The sudden decline last month also suggests that August’s bumper sales were temporally buoyed by tourists taking advantage of the weaker Pound and by Briton’s spending their summer holidays at home.

Euro’s (EUR) Advances despite Concerns of Showdown in Catalonia

Meanwhile the Euro has strengthened today despite Catalan president Carles Puigdemont declining to suspend plans to declare independence.

Madrid had imposed a 10am deadline on the Catalan government to end its plans to secede or face the Spanish government activating Article 155 of the constitution and imposing direct rule over the region.

Spain is now planning to start suspending Catalonia’s autonomy on Saturday, with Puigdemont stating that the Catalan government would vote on independence if the Spanish government attempts to ‘repress’ the people of Catalonia.
A statement from the government read;

The Spanish government will continue with the procedures outlined in Article 155 of the Constitution to restore legality in Catalonia's self-government,"

"It denounces the attitude maintained by those in charge of the Generalitat [Catalan government] to seek, deliberately and systematically, institutional confrontation despite the serious damage that is being caused to the coexistence and the economic structure of Catalonia.

"No-one doubts that the Spanish government will do all it can to restore the constitutional order.

Market fear however that the move could spark unrest in Catalan, likely disrupting Spanish economic growth, a large portion of which is derived from the region.

GBP EUR Forecast: UK Public Sector Deficit to Widen?

Looking ahead the GBP EUR exchange rate may retreat even further on Friday with the release of the UK’s latest public sector borrowing figures as economists forecast that the UK deficit will have risen from £5.09bn to £5.7bn last month.
However an unexpected improvement could bolster the Pound by giving Chancellor Philip Hammond a little more wriggle room in next month’s budget.

Meanwhile the Euro may cede some ground tomorrow morning as analysts predict that Germany’s latest Producer Price Index will have slipped from 0.2% to 0.1% in September.

Current Interbank Exchange Rates

At the time of writing the GBP EUR exchange rate was trending around 1.132 and the EUR GBP exchange rate was trending around 0.8982.

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TAGS: Pound Euro Forecasts