HSBC: UK Outlook

From the FXWW Chatroom: Today’s retail sales numbers round off a hat trick of worrying data for the UK this week, after inflation came in higher than expected and wage growth disappointed. While some fall back in retail sales was to be expected after the strong April numbers, these numbers are particularly weak. We still expect Q2 GDP growth to be an improvement on Q1’s 0.2% q-o-q. But the data so far are not filling us with confidence. Industrial production and construction were weak in April, and today’s retail sales data suggest early momentum for distribution tailed off quite quickly.
Inflation and falling real incomes still appear to be the main culprit: Tuesday’s inflation and yesterday’s wage numbers provided absolutely no comfort in this regard, with the real rate of growth falling further into negative territory (see Wage growth weakens despite record employment, 14 June). With our new, upwardly revised inflation forecasts, we now see this wage squeeze lasting longer. As well as rising prices, political uncertainty, an already low savings rate, a drop in net migration and a housing market slowdown all suggest consumption growth will stay subdued in the UK well into next year.

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