The British pound continues to face notable headwinds, languishing near multi-year lows as weak economic data reflects persistent challenges in the UK economy.
December’s retail sales contracted by 0.3%, falling short of expectations, while quarterly sales declined by 0.8% in Q4 2024 compared to Q3.
Although sales were 1.9% higher than in Q4 2023, this modest recovery exhibits the fragility of consumer demand in a challenging economic environment.
A steep decline in food store sales brought the sector to its lowest level since April 2013, driven by underperformance in supermarkets. Conversely, non-food stores, particularly clothing retailers, experienced a 4.4% rebound in December, reflecting resilience in discretionary spending during the holiday season. This divergence highlights shifting consumer priorities, with essential spending remaining subdued despite seasonal demand in other categories.
Looking ahead, the pound’s trajectory will depend on critical economic data releases, including unemployment rates, consumer confidence, and PMI figures. Downbeat data could increase pressure on the currency, while positive surprises may offer limited support. In parallel, UK bond yields are facing downward pressure amid expectations of a potential rate cut by the Bank of England in February. However, continued economic uncertainty may prompt investors to demand higher risk premiums, further complicating the outlook for UK assets.
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