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What to watch: UK government borrows another £8.8bn, pound hits $1.40, UK retail sales collapse

LaToya Harding
·4-min read
Britain's Chancellor of the Exchequer Rishi Sunak looks on as he leaves following an outside broadcast interview, in London, Britain, November 26, 2020. REUTERS/Toby Melville
The UK government borrowed another £8.8bn ($12.29bn) last month, much less than economists were expecting. Photo: REUTERS/Toby Melville

Here are some of the top business, market, and economic stories you should be watching today in the UK, Europe, and around the world.

UK government borrows another £8.8bn in January

The UK government borrowed another £8.8bn ($12.29bn) last month, much less than economists were expecting.

Data published by the Office for National Statistics (ONS) on Friday showed public sector net borrowing stood at £8.8bn in January. Economists had forecast borrowing of £25bn.

While the monthly figure was below forecasts, the UK's national debt still stands at £2.1tn. The ONS said debt as a percentage of GDP hasn't been this consistently high since the 1960s.

"Lower-than-expected borrowing in January should not be interpreted as a signal that the economy is withstanding the third lockdown relatively well," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

"A sharp £2.1bn year-over-year decline in interest payments, and the vanishing of contributions to the E.U.’s budget, which totalled £2.2bn in January 2020, helped."

The COVID-19 pandemic has forced the government to borrow sums not seen in peace time. The state is on track to borrow £400bn by the end of the current financial year in April. The cash has gone towards protecting businesses, supporting jobs, and bolstering the NHS and public health response to the virus.

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Pound hits $1.40 for first time since April 2018

The pound hit a fresh milestone against the dollar (GBPUSD=X) on Friday, reaching $1.40 for the first time since April 2018.

Sterling shrugged off disappointing UK data amid a wave of vaccine optimism and hopes of eased lockdown restrictions in the country.

The pound hit $1.40 on Friday, its highest level since April 2018.
The pound hit $1.40 on Friday, its highest level since April 2018.

Earlier this week, UK prime minister Boris Johnson said measures in England will be eased “cautiously” after scientists tracking the health crisis confirmed there had been a "strong decline" in levels of coronavirus infections in England since January.

The PM said he would set out "what we can" in a road map for easing restrictions this coming Monday. "We want to be going one way from now on, based on the incredible vaccination rollout," he said.

At the weekend ministers were hopeful that schools could reopen from 8 March, with non-essential shops and retailers to follow, and later pubs and restaurants.

The rallying pound, however, meant that the FTSE 100 (^FTSE) lagged against its continental peers on Friday, up just 0.039% after declining for a third consecutive day on Thursday.

The DAX (^GDAXI) was 0.51% higher, while the CAC (^FCHI) rose 0.52%, pulling back some of the losses that were incurred earlier this week. Volatility has been low as there has been no change to the broader macroeconomic outlook.

UK retail sales collapse in lockdown

UK retail sales fell sharply last month as a return to lockdown stopped people spending.

Data from the Office for National Statistics (ONS), published on Friday, showed sales fell by -8.2% in January. Economists had forecast a -2.5% month-on-month decline.

The ONS said the data showed "a steep decline in the sector, as it was again affected by coronavirus (COVID-19) restrictions."

"Feedback from retailers suggested that these enforced closures affected sales, although not to the same extent as witnessed in April 2020 (the first full month of restrictions on the retail sector) when total retail fell by 22.2%," the ONS said.

READ MORE: UK retail sales go into reverse for first time in six months

January's decline followed near-flat sales in December. November's month long lockdown had sent retail sales into contraction for the first time in six months. Sales are currently 5.5% below pre-pandemic levels, the ONS said.

ING economist James Smith said: "Assuming the spring reopening proves sustainable, and the vaccines succeed in keeping transmission and hospitalisations contained, then consumer spending is likely to rise strongly from spring onwards. However we think it's more likely to favour services for obvious reasons, and it's therefore likely that retailers won't feel the full benefit (though clothing may be a possible exception)

"The abrupt switch to online retail during the pandemic is also unlikely to fully reset, having only accelerated a trend that was already there. It's therefore likely that we'll see further signs of consolidation on the high street this year, and that may unfortunately contribute to a rise in unemployment in the sector."

Additional reporting by Oscar Williams-Grut

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