Morning Update

UK Retail Sales for October have come in considerably lower-than-expected, marking the fourth contraction this year as households continue to grapple with the rising cost of living and save ahead of Christmas. Retail sales dropped 0.3% between September and October, missing forecasts of a more marginal 0.3% rise. Poor weather was also cited as a driver behind the fall in sales, as footfall fell across many parts of the country. On a month-on-month basis this marked the second consecutive fall, following a 1.1% contraction between August and September.
When excluding fuel, the slump in retail sales was somewhat less pronounced, hitting a more marginal 0.1% decline given that fuel sales fell by a sizeable 2%. Here, the ONS cited how this fall in fuel sales may be affected by increasing fuel prices. Elsewhere, alcohol and tobacco stores also recorded a considerable 10.4% decline as sales at clothing and household goods shops fell 0.9 and 1.1% respectively. The ONS also noted that sales at department stores dropped 0.1% over the month with some firms indicating that this was driven by a drop in consumer confidence.
An annualised basis, retail sales also declined 2.7% on against forecasts that the figure would fall by a less severe 1.5%. October also marked the 19th consecutive fall, signalling that headwinds remain for the British retail sector.

With the ONS citing the poor weather as a factor behind the drop in retail sales, it’s worth looking at the weather over October. According to the Met Office’s monthly climate summary, it was the sixth wettest October since records began in 1836. Here, Met Office stated that “the second half of the month was unsettled and very wet at times. Widespread, prolonged and heavy rainfall from storm Babet from 18th to 21st caused brought serious flooding problems to many areas, with eastern Scotland worst affected.”

Sticking with storm Babet, according to findings from PwC, it is estimated that the insurance costs is between £450 and £650 million. Moreover, according to the General Insurance Leader at PwC UK, Mohammad Khan, “the significant insurance outlays suggest that additional alerts regarding the potential repercussions of Storm Ciarán in England and the Channel Islands could escalate these costs”.

Following the Governments announcement that HS2 will be scrapped from the West Midlands to Manchester, the Prime Minister has stated that some of the funds saved will be redirected to repair potholes across the country. Yesterday, the PM set out how £8.3bn would be redirected to local councils over the next decade for maintenance of potholes and resurfacing of roads. Less emphasised was how just £150m would be allocated this year, with the same amount next year too. The Rest is hence to be made up over the decade. Though according to the Local Government Association, the funds needed are closer to £14bn. According to the No.10, over 5,000 miles of roads could be repaired if all the funding is spent on resurfacing. Hence, while many councils were expecting a new high speed trainline, attention will have to turn back to the perpetual challenge of fixing potholes. 

Oil prices fell further over the course of yesterday’s session, slumping some 4.9%, with WTI crude futures falling further this morning having traded below $73dpb. This came as US inventory data published yesterday recorded rising stockpiles and US unemployment benefits rose to their highest level in close to two years. As we looked at earlier this week, price action last Friday was driven by the EIA’s statement last week that US petroleum consumption would slip 300,000 bpd this year to just over 20m bpd. The downward pressure on oil means that WTI looks set to make its fourth consecutive weekly fall as it declines to four-month lows. WTI is presently trading around 16.6% lower on the month.

Eurozone inflation figures will be released at 10:00 this morning, where the markets will be keeping a close eye on whether the 20-member currency union will see inflation fall further to Frankfurt’s 2% target. The general market consensus is presently projecting that the Harmonized Index of Consumer Prices figure will remain unchanged from last month’s print at 2.9%. Core HICP is projected to be considerably higher at 4.2%, indicative of the prevalence of ‘sticky’ inflation across much of the Eurozone.