Home ForexForecasts GBP/USD: Sterling falls as retail sales fall

GBP/USD: Sterling falls as retail sales fall

by SuperiorInvest
  • UK retail sales fall 3.2% in December
  • GBP/USD falls

The British pound weakened slightly on Friday. In the European session it is trading at 1.2682, 0.18% less.

UK retail sales fall

Markets expected a disappointment in December retail sales after a strong reading in November, but no one expected a multi-year decline. However, that is what happened, as retail sales plunged by 3.2% month-on-month, the lowest level since January 2021. Considering the sharp drop, the reaction of sterling has been muted.

In November, retail sales rose a revised 1.4% as shoppers flocked to department stores to take advantage of Black Friday sales and other discounts. This meant that much of the Christmas shopping was done in November. The massive 3.2% drop crushed the -0.5% consensus estimate.

There’s more to this story than Black Friday sales. December’s weak reading reflected a British consumer who is pessimistic about the economy and is being relentlessly pressured by high inflation and high borrowing costs. December retail sales were brutal, but the difficulties facing consumers are nothing new: Retail sales fell 2.8% in 2023, the lowest level since 2018.

The sharp drop in retail sales will have a negative impact on December GDP, which could mean fourth quarter GDP will be negative. If that is the case, the UK will technically be in recession, with two consecutive quarters of negative growth. Even if the UK manages to avoid a recession, growth will be flat.

The Bank of England has left rates unchanged three times in a row and meets on February 1. The sharp fall in retail sales supports the Bank of England to consider a rate cut, but December inflation unexpectedly rose from 3.9% to 4.0%, and the Bank of England will be hesitant. reduce rates before inflation approaches the 2% target.

GBP/USD-Daily Chart

GBP/USD Technical

  • GBP/USD is testing the support at 1.2689. Next, there is support at 1.2625.
  • There is resistance at 1.2738 and 1.2802

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