Pound Australian Dollar Exchange Rate News: GBP/AUD Slumped amid Poor UK Retail Sales

September 16, 2022 - Written by John Cameron

STORY LINK Pound Australian Dollar Exchange Rate News: GBP/AUD Slumped amid Poor UK Retail Sales

Pound (GBP) Under Renewed Pressure as Retail Sales Tumbled

The Pound (GBP) slumped on Friday in the wake of worse-than-expected retail sales for the month of August.

Retail sales printed at -1.6%, versus an expected 0.5% drop. Missing forecasts by a substantial amount, the fall in economic activity is troubling. Excluding fuel prices, core retail sales still fell by 1.6% as well, the largest slump since December 2021, and a fall of 5% YoY. More concerning is that grocery sales volumes fell below pre-pandemic levels, highlighting that shoppers are now more conscientious of wastage and limiting what items to buy. Lisa Hooker, industry leader for consumer markets at PwC, said that shoppers are having to buy less to offset inflationary pressures. She added:

‘As we approach the critical Golden Quarter in the run up to Christmas, retailers will be looking with anticipation to the outcome of next week’s mini-budget.

‘The confirmation of an energy price cap and possibility of tax cuts may boost wavering consumer spending, but businesses will also be looking for help to alleviate soaring utility costs of their own. That’s in addition to the input cost inflation and wage rises that they are already having to contend with.’

After a softening of inflation which saw the Pound experience a short-lived resurgence, with retail sales plunging over three times more than the markets predicted, worrying times are ahead. Recession is back on the table, and with several high-profile high street businesses expressing concerns over profits, the economic outlook remains bleak for the UK, and the Pound.

Olivia Cross, Assistant Economist at Capital Economist, warned that the UK economy is already in a recession, and retail sales will continue to struggle. Cross added:

‘The fall in retail sales in August more than reverses the upwardly revised 0.4% monthly rise in July. Sales volumes fell in every major category and the ONS reported that high prices were prompting households to reign in their spending.

‘With CPI inflation yet to peak, it will continue to squeeze real incomes and weigh on consumer spending in the coming months.’

Australian Dollar (AUD) Strengthened Despite Risk-Off Sentiment

The Australian Dollar (AUD) enjoyed moderate strength against many of its rivals on Friday despite mounting concerns of an imminent global recession.

Boosting the ‘Aussie’ was the printing of positive Chinese data. Industrial production edged higher in August, expanding by 4.2%m comfortably beating forecasts of 3.8%. A fourth straight month of growth and the steepest improvement with hopes of economy-faltering Covid outbreaks finally peaking.

Meanwhile, retail sales in China followed suit and increased by 5.4% YoY in August, also marking the third consecutive growth in the sector and the strongest pace in six months. Consumption in the world’s second largest economy significantly improved as Covid measures wound down and increased spending on home appliances and clothing.

However, a stark warning issued by the World Bank could weigh on the risk-sensitive ‘Aussie’. As the global core inflation rate could sit at 5% in 2023, double the five-year average pre-pandemic, unless energy supply troubles ease, a global recession is close. David Malpass, President of the World Bank, said:

‘Global growth is slowing sharply, with further slowing likely as more countries fall into recession.’

GBP/AUD Exchange Rate Forecast: Global Market Sentiment to Sour the Aussie?

Looking ahead, with no major data left for the rest of Friday’s session, the Pound Australian Dollar exchange rate will be left open to downbeat market mood. With global recession fears ever growing, the Australian Dollar could see a dip.

Meanwhile, the Pound could continue to feel the downward pressure amid the myriad of domestic woes weighing on the economy, and Sterling.

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