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Pound falls, retail shares follow as shoppers rein in spending

·2-min read
Retail sales fell in March, the ONS said (Ben Birchall/PA) (PA Wire)
Retail sales fell in March, the ONS said (Ben Birchall/PA) (PA Wire)

Retail sales fell 1.4% in March, figures from the Office for National Statistics showed, a far sharper fall than City analysts had expected.

Consumers cut back on non-essential spending as the cost of living crisis hit home.

A closely watched consumer confidence index from GfK fell by 7 points from -31 to -38 for April.

Joe Staton, GfK’s Client Strategy Director, said: "This is dire news for consumer confidence and with little prospect of any economic relief on the horizon we can only forecast further falls in the index for the year ahead”.

Retail shares took a sharp hit, with B&M, Next, Ocado and M&S among the biggest fallers on a lacklustre day for the stock market.

The pound fell against both the euro and the dollar, to its weakest level since late 2020. It was off 0.7% against the dollar to $1.2939, a fall so notable some economist say the Bank of England may pull back on aggressive interest rate rises.

Kevin Brown at Scottish Friendly said: “There is no hiding from the fact that consumers are feeling the effects of inflation more keenly than earlier in the year. Many families are now in a difficult position where they must prioritise spending and make severe cutbacks in some areas to ensure they have enough money to get by.”

All of which increases the chance of the UK economy falling into recession. This week the IMF said Britain faces slower economic growth and more persistent inflation than any other major economy.

"Consumption is projected to be weaker than expected as inflation erodes real disposable income, while tighter financial conditions are expected to cool investment," the IMF said about Britain.

Capital Economics said in a note: “The hefty fall in retail sales in March marks the second consecutive month of decline and adds to signs that the real wage squeeze is hitting consumer spending. With CPI inflation already at a 30-year high and set to keep rising, there’s a real risk of outright falls in consumer spending in the coming quarters.”

PMI data confirmed a further slowdown in UK economic growth with the S&P Global/CIPS Services PMI Flash for April reading at 58.3, below the 60 the market was expecting and sharply lower on March’s 62.6.

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