Sterling falls on poor retail sales and Raab adds to drama

(Alliance News) - A batch of poor UK retail sales data, a serving of an underwhelming purchasing managers' index reading and a sprinkling of political uncertainty were the recipe for a poor day for sterling on Friday.

Against the single currency, it faded to EUR1.1297 on Friday from EUR1.1346 a day earlier. Versus the dollar, it dropped to USD1.2419 from USD1.2442.

UK retail sales declined by more than expected in March, according to data from the Office for National Statistics.

Retail sales volume is estimated to have fallen 0.9% in March from the month before, following a 1.1% rise in February. February's monthly rise was revised down from an increase of 1.2%, the ONS said.

Markets expected retail sales volume to fall 0.5% in March on a monthly basis, according to FXStreet-cited consensus.

Against the same month a year prior, retail sales volume fell 3.1% in March, slowing from a fall of 3.5% in February. The annual print was in-line with market expectations.

"Poor weather in the UK weighed on retail sales in March following an increase in the previous month, particularly on non-food items. It was the sixth wettest March on record since 1836, with retailers such as garden centres and jewellery stores impacted negatively. Food store sales volumes also declined in March, partly because of the recent food shortages. Food store sales are still down 3% versus pre-pandemic levels from February 2020 because of food price inflation and the cost-of-living crisis. One bright spot came from motor fuel sales which rose by 0.2% in March versus a fall of 1.2% in February but remains 8.5% below pre-covid levels," interactive investor analyst Victoria Scholar commented.

UK retail sales may have hit a trough, according to dutch bank ING.

"Pressure on real wages is set to ease over coming months and consumer confidence has risen from its lows. That suggests the worst is behind us for the UK high street, despite a fall in March sales," ING analysts stated.

"Admittedly, none of this points to a rapid rebound in retail activity, but is another piece of the jigsaw that suggests the UK economy will dodge a technical recession in the first half of the year. First quarter GDP currently looks set to come in marginally positive, and the second slightly negative. As a result, the recent activity data is of little consequence for the Bank of England which remains squarely focused on inflation."

PMI data was slightly more resilient, though growth was led by services and manufacturing struggled.

The headline seasonally adjusted S&P Global flash UK composite output index read 53.9 points in April, up from 52.2 in March.

The UK flash services purchasing managers' index stood at 54.9 points in April, up from 52.9 in March, while the flash manufacturing PMI slipped further into contraction at 46.6 points, down from 47.9 in March.

Also hurting sterling was some slight political uncertainty.

Dominic Raab has resigned as UK deputy prime minister after an inquiry found he acted in an intimidating and aggressive way with officials in behaviour that could have amounted to bullying.

Prime Minister Rishi Sunak, who had spent the night agonising over whether to sack his key ally, accepted Raab's resignation on Friday morning with "great sadness".

Sunak filled the gap in his Cabinet by promoting two longstanding allies, with Alex Chalk becoming justice secretary and Oliver Dowden appointed as deputy prime minister.

Brown Brothers Harriman analysts noted sterling "underperformed" on Friday, and it may test an April 10 low of around USD1.2345.

By Eric Cunha, Alliance News news editor

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