"For the next few quarters, weak pay will probably keep retail spending growth contained and mean this is a solid rather than spectacular recovery"
- Rob Wood, an economist at Berenberg Bank
The Sterling dropped to a session low on Thursday, while gilt futures advanced after data from the ONS showed an unexpected drop in the U.K. retail sales, as consumers cut their spending on household appliances, fuel and clothing. Retail sales, which are the primary measure of consumer spending, fell 0.7% between September and October, while still posting a 1.8% gain on an annual basis. Core retail that excludes fuel sank 0.6% on a month and inched higher 2.3% from the same period a year earlier. What is more important is that all indicators came short of analysts' expectations. The ONS also stressed out that the recent drop ended a strong run of shopping data, and points that the trend in the autumn was almost flat.
Meanwhile, analysts believe retail sales will recover during the rest months of the year, expecting a hike in consumption in November, as shoppers are gearing up to increase spending in November, as the deadline for Christmas deliveries by online providers is approaching. A boost in sales is also likely to happen in December, which is usually the busiest period for retailers. In its quarterly statement, the BoE said the recovery is building up steam, while a modest rise in wages is still pointing at challenges faced by the economy, before it can achieve a sustained growth. Wages increased 0.7% during the last year, compared with a 2.2% gain in inflation. Hence, stronger wage growth is crucial, as consumers may be running out of free cash to spend.
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