The pound initially fell yesterday morning after the publication of worse than expected UK retail sales figures but recovered to record gains across the board after better than expected UK services sector data and as anxieties about tomorrow’s European Central Bank meeting took centre stage.
The British Retail Consortium (BRC) and KPMG reported yesterday morning that UK retail sales fell by 0.4% in August 2012 in comparison to August 2011 when they were down by 0.6% from August 2010.
Stephen Robertson, Director General, British Retail Consortium, said “The hot weather and the Olympics did help sales of party food and drink but that was more than offset by a really weak performance for non-food goods. As summer gives way to the all-important Christmas run-up, retailers will be hoping sales that didn’t happen in August have been postponed and not lost entirely.”
Later on, sentiment turned more positive after data from Markit showed that the latest Purchasing Managers Index for the dominant service sector showed solid growth in August, registering a figure up from July’s figure of 51 to 53.7. It is worth bearing in mind that any figure above 50 denotes growth.
The latest survey data added to hopes that the UK economy would pull out of recession following the 0.5% contraction seen in the three months to June 2012.
Chris Williamson, Chief Economist at Markit, said “The wild card remains construction, for which the survey data indicated falling activity in August, which could subdue any recovery in the wider economy. The big question is whether the expansion can be sustained. It is concerning that the upturn in activity was not matched by a similar rise in hiring, with employment in the service sector instead growing at the slowest pace since February, and business expectations for the year ahead remaining very low by historical standards”.
Attention is now turning to tomorrow’s policy announcements from both the Bank of England (BoE) and European Central Bank (ECB). In the run up, euro zone politicians continue their not so behind the scenes meetings in an attempt to thrash out a common solution to the long running sovereign debt crisis.
French President François Hollande is to meet with Italian Prime Minister Mario Monti as both seek to persuade German leader Angela Merkel that Europe, particularly Greece, needs to focus on implementing measures to stimulate growth rather than becoming obsessed with austerity.
Elsewhere, The Institute for Supply Management in the US reported a further fall in its manufacturing index to 49.6% in August. It is now three months in a row where the index has fallen and the figure for August is the weakest in three years. Any figure below 50% indicates a contraction. This follows data from both China and the euro zone showing a further weakening in worldwide manufacturing output.