Bank of England monetary policymaker Cathy Mann said yesterday that in some ways we already have stagflation, and pointed to retail sales and high inflation.
Bethany Beckett, UK economist at Capital Economics, said the “hefty” drop in retail sales
adds to growing signs that the squeeze on real incomes is hitting household spending. With CPI inflation already at a 30-year high of 7.0% and set to keep rising, there’s a real risk of an outright fall in consumer spending in the coming quarters.
The sharp decline in sales in March suggests that households are already paring back spending to cope with higher costs for food and fuel. That is only likely to worsen in the coming months as the cost of living crisis intensifies. After all, the March data predated April’s huge 54% rise in utility bills which will have hit household budgets hard. Indeed, the GfK survey of consumer confidence in April crashed to its lowest level since 2008.
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In the UK, retail sales fell 1.4% in March, following a 0.5% drop in February, as people cut back on fuel and food spending amid soaring prices.
Overall sales volumes were 2.2% above their pre-pandemic levels in February 2020, the Office for National Statistics said.
Non-store retailing, such as online sales, posted the biggest decline, of 7.9% following a 6.9% drop in February.
Food sales were down 1.1% and have failed every month since November. The ONS said this is because people are eating out more but also pointed to the impact of rising food prices on the cost of living. Petrol and diesel sales fell 3.8%, as people drove less because of record high fuel prices, which jumped 9.9% in March.
The proportion of retail sales online continued to fall, to 26%, its lowest proportion since February 2020 when it was 22.7%.
UK inflation hit a 30-year high of 7% last month, while the war in Ukraine has driven oil prices well above $100 a barrel, amid supply disruption.
Lynda Petherick, head of retail for Accenture in the UK and Ireland, said:
Good weather usually means sunny times for retail, and firms will hope that the summer months can play a small part in stimulating waning confidence among a general public coping with the harsh realities of rising prices everywhere they turn. In reality, each day brings fresh warnings from business leaders that prices will likely continue to climb, driving consumer confidence in the wrong direction for retailers.
US stock markets slumped after the European close yesterday, after US Federal Reserve chair Jerome Powell laid out the case for a possible half-point rate hike at next month’s May meeting of the US central bank.
Michael Hewson, chief market analyst at CMC Markets UK, said:
This seems a rather strange reaction given that nothing he said yesterday was in any way surprising. A 50 basis point rate hike is already priced in, as well as the prospect that we could well see another one soon afterwards.
We also heard from European Central Bank President Christine Lagarde yesterday as she capped off a couple of days of some rather hawkish comments from the likes of Belgium’s Pierre Wunsch, and ECB vice president Luis De Guindos who followed on from Latvia’s Martin Kazaks by arguing that a July rate rise was on the table. She did n’t come across as anywhere near as hawkish as her colleagues de ella, pointing to the June meeting as the moment to decide on next steps, and lightly pushing back on the idea of a fixed point.
Bank of England Governor Andrew Bailey also played a straight bat, but he did give the impression that another rate rise was coming in May, given concerns about how inflation was starting to bed in, however he didn’t have the air of a man ready to give a strong steer on at 50bps move, although he did acknowledge the tightness of the labor market, where we are quite likely to see further welcome upward pressure on wages in the months ahead.
Asian shares are sliding as investors worried about the aggressive rate hike outlook in the United States, as well as the impact of Covid lockdowns in China.
Japan’s Nikkei lost 1.6%, Hong Kong’s Hang Seng slipped 0.2% and the Australian market fell 1.5%. The Shanghai composite bucked the trend with a 0.6% rise while the Singapore exchange was up 0.1%. European shares are also expected to open lowerafter a broadly positive session yesterday.
- 8.15am BST: France flash PMIs for April: manufacturing, services, composite
- 8.30am BST: Germany flash PMIs for April
- 9am BST: Eurozone flash PMIs for April
- 9.30am BST: UK flash PMIs for April
- 2ppm BST: ECB president Christine Lagarde speech
- 2.45pm BST: US flash PMIs for April
- 3.30pm BST: Bank of England Governor Andrew Bailey speaks at IMF panel on inflation
George is Digismak’s reported cum editor with 13 years of experience in Journalism