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Pound below $1.30 as heatwave takes its toll on retailers

11:48 am, 19th July 2018

The Office for National Statistics (ONS) showed sales volumes excluding fuel during June were 0.6% down on the previous month – coming in below the expectations of economists.

The other evidence to date has been that the return of largely good weather since May culminating in several heatwaves and football’s World Cup had driven up demand after a woeful start to the year for the high street ahead of the royal wedding.

But the ONS figures suggested that while supermarkets have clearly benefited, non-food outlets have continued to struggle.

:: DFS blames heatwave for falling sales

Its inflation data released 24 hours earlier showed strong discounting among fashion retailers in June, underlining the pressure on stores to shift stock at a time of continued caution by consumers.

The pound has been dragged back in recent weeks by government Brexit turmoil and, latterly, by growing doubts over an August rate hike as the ONS figures were not seen as supporting the case for an increase.

In addition to inflation remaining static in June, the number-crunchers also revealed that wage growth is continuing to slip.

However, the retail sales figures were not all bad news as the ONS registered an increase of 2.1% over the second quarter of the year as a whole, the largest rise since February 2015.

Senior statistician, Rhian Murphy, said: “Retail sales grew strongly across the three months to June 2018 as the warm weather encouraged shoppers to buy food and drink for their BBQs.

“However, in June retail sales actually fell back slightly, with continued growth in food sales offset by declining spending in many other shops as consumers stayed away from stores and instead enjoyed the World Cup and the heatwave.”

The high street is not the only area of the UK economy feeling the heat from the summer weather.

‘Big six’ energy firm SSE saw its shares sink by 3% on opening on Thursday when it revealed that the good weather since the spring and higher wholesale gas prices would knock £80m from profits.

The company, which is aiming to merge its energy and supply business with nPower, said low wind generation was also a factor.

It reported a 10% drop in expected gas use in its first quarter because temperatures were warmer than the 30-year
average.

Lukman Otunuga, research analyst at FXTM, said of sterling’s performance after the retail sales data: “Market expectations over the Bank of England raising interest rates next month are now likely to be heavily diminished and this can already be reflected in the pound’s bearish price action.

“The GBP/USD has plunged to a 10-month low below 1.2990 this morning and has scope to extend losses as long as bears can maintain control below 1.3000.

“If the dollar continues to appreciate, the next key level of interest can be found around 1.2950.”