GBP/USD: Resilient UK retail sales, vulnerable finances – MUFG

The UK Retail Sales came in at 1.2% over the month in October vs. 0% expected and 1.5% previous, showing the resilience of the British consumer ahead of the second nationwide lockdown. The cable remains capped below 1.33 on upbeat figures and economists at MUFG Bank expect the pound to suffer due to UK’s financial troubles caused by the covid crisis.  

Key quotes

“UK retail sales jumped 1.2% MoM in data for October and once again we have evidence of the resilience of consumer spending when an economy faces restrictions related to COVID-19. The economy wasn’t in full lockdown in October (that began on 5 November) but regionally the economy was impacted, especially the North of England, Scotland and Wales.”

“The resilience of retail sales partly reflects that fact but also the strength in ‘non-store retailing’ that includes online consumer spending. This segment of retail sales jumped 6.4% in October from September. But it will be services-related consumption that will get hit in Q4 and we now forecast a GDP contraction of 3.8% QoQ in Q4 in the UK. If realised that would mean calendar year contraction of 11.6%.” 

“Rishi Sunak will next week announce a pay freeze for public sector workers for three years. This would come just after the end of a decade of austerity related to the GFC and will likely fuel resentment. Healthcare workers are to be exempt. Still given the bigger hole in UK finances from COVID-19 than elsewhere, the drag on growth going forward is set to be larger in the UK than elsewhere which will act as a drag on GBP performance as well going forward.” 



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