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The recent release of June retail sales data in the UK has left many experts and analysts scratching their heads. According to official figures, sales volumes dropped by 1.2% last month, following a 2.9% rise in May. This was a much larger fall than predicted by Reuters' poll. So, why do British consumers seem unwilling to spend? Is the UK economy really in trouble, or is there more to this story than just a bit of rain?
To help answer these questions, I'm joined by my guest, Brook Shetan, Head of Global Market Strategy at NIS Investment Managers. Brook, thanks for joining us. Many experts seem to be blaming the weather for putting off consumers in June. Do you agree, or is there a bit more to it than just a bit of rain?
Clearly, retail sales were a bit disappointing in the UK, but this data is volatile by definition. There is no significant trend to withdraw when we look at this data, so we cannot say this is very bad news or very good news. We need to gather more information. Confidence data were a bit disappointing, but when you look at the trend, it is quite positive actually. I'm not concerned about the UK economy because it is showing signals of recovering. Definitely, this number does not reflect a negative trend in my opinion. This is volatility, and this is quite normal when we look at this data.
If we look in parallel at the GfK confidence index that was released this morning, the story is a bit different. This indicator is showing a positive trend, so the picture is not as bad as this number is suggesting. From what you've just said, I'm guessing you don't think this particular data will impact the Bank of England's decision next month, then?
Not really. Again, this data is very volatile, so the Bank of England will focus on a large panel of data. Inflation will remain the key indicator that they will continue to monitor, particularly inflation coming from the labor market, wage increase, wage growth. We have seen a significant increase in wage growth since the beginning of the year, but there are some signals that this increase has started to decelerate somehow. Clearly, this is maybe the right moment for the BoE not to lower their interest rates but to signal that they are ready to do it.
The same thing goes for the FED at the end of the month. They will probably even signal that this is the right moment to change their stance in order to prepare the market to reinforce expectations. Not a rate cut next month, but perhaps further down the line this year?
Yes, we do expect the first rate cut for the FED and for the BoE in September, which is actually the right moment and the best moment for the two central banks to move. They are not signaling that they are easing monetary policy conditions, but they are saying, "Okay, we are pragmatic. Our job is to smooth the business cycle. We are seeing good progress on the inflation front, and clearly now this is the right moment to deliver the first rate cut."
This doesn't mean that monetary policy and monetary conditions will clearly continue to lower and be more accommodative. They will remain restrictive, of course, but at some point, central banks have to react and take into account the reality of the situation. So, while the June retail sales data may have caused some initial concern, it's important to look at the bigger picture and consider all the available information before making any definitive conclusions about the UK economy's health.
In conclusion, the June retail sales data in the UK may have been disappointing, but it's important to remember that this data is volatile and doesn't necessarily reflect a negative trend. The UK economy is showing signs of recovery, and confidence data is trending positively. While the Bank of England and the FED will take this data into account, they will also consider a wide range of other factors, with inflation remaining the key indicator. It's possible that we may see a rate cut from the FED and the BoE in September, but monetary policy conditions will remain restrictive. As always, it's crucial to stay informed and consider all available information before making any conclusions about the economy's health.
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