Sterling has recovered some ground from its three-year low against the euro earlier this week, as UK retail sales surged in July, suggesting British consumers are unfazed by the vote to pull out of the EU.
Official data showed that retail sales increased more than expected, signalling that the vote on June 23 hasn’t yet dented the confidence of shoppers. This is despite the fact that a separate survey announced late last month showed consumer morale had suffered a sharp drop.
Yesterday’s data from the Office for National Statistics, however, is the first official figures shedding light on consumer sentiment in the UK since the Brexit vote.
Retail sales volumes surged 1.4pc in July compared with June, and was up 5.9pc compared with the same period last year. But analysts have cautioned that the better-than-expected figures, boosted, it’s believed, by warm weather and a weak sterling, may be shortlived.
“This positive surprise is encouraging for growth, but with consumer confidence having plunged in the wake of Brexit and business surveys suggesting growing caution, we doubt that it is sustainable,” said James Knightley, ING economist. The London-based Centre for Economics and Business Research said earlier this week that consumer spending has helped drive the recovery in the UK in 2014 and 2015, but warned that is set to “grind to a halt” with inflation forecast to surge above 2.5pc in the first half of next year on the back of a weakened sterling.
The pound weakened to a three-year low this week as it tipped above 87 pence to the euro. By mid-afternoon yesterday it was at 0.8616.
HSBC predicts the euro will reach parity with sterling within 18 months, arguing that further weakness is required.
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