UK Retail Sales, US Labour Market and Inflation Driven Disputes

Retail Sales Fall as ONS Cites Poor Weather and Shortages

This morning has seen UK retail sales fall faster than expected, indicating a slowdown in consumer spending as household budgets continue to get stretched. Today’s figures show retail sales falling 0.9% between February and March with some food shortages and bad whether getting the blame. According to the ONS, “26% of adults experienced shortages of essential food items that were needed on a regular basis” an uptick from February of around eight percentage points. This came as food prices continued to soar and only this week, we have seen food price index hit its highest level in 45-years, though the BRC maintain that food prices should fall as production costs ease.

On the poor weather front, the ONS stated that “feedback from retailers suggests that this was partly because of poor weather conditions in March 2023. The Met Office’s monthly climate summary reported that the UK had 155% of average rainfall for the month, making it the sixth wettest March on record since 1836. Indeed, according to the Met Office, England had its wettest March since 1981, so let’s hope for a dryer April then.

March’s retail sales mark a considerable change from last month’s print which saw retail sales climb 1.1% between January and February. Though, this morning’s print follows a year were UK retail sales witnessed their worst year since records began in 1997 and thus all eyes are on 2023 to see whether Britain’s retail sector can recover from a turbulent few years.

Initial Jobless Claims Rise as Markets Weigh on Easing US Labour Market

Yesterday afternoon saw US Initial Jobless Claims rise to 245,000 surpassing expectations and acting as further evidence to suggest that the heat of the US labour market was easing. This follows the Fed’s Beige Book indicating that the US jobs market had “moderated somewhat”. Given that the US labour market has been a key driver of inflationary pressure in the economy the last two years over the easing of the labour market may continue to see inflation cool. According to Reuters “The combination of spring breaks, which temporarily left support staff at some school districts unemployed, and people who have exhausted their severance packages following a rush of layoffs in the technology sector and other areas of the economy sensitive to interest rates, could account for part of the rise in claims last week”. The highest rise in jobless claims came from California, New York, Massachusetts and Texas.

Continuing on from yesterday’s update, oil prices continued to retreat yesterday, falling over 2.5% on the day. This price action follows investors weighing on the prospect of further monetary tightening from central banks (including the Fed, BoE and ECB), oil prices have come under pressure, slipping to around $78.5dpb. Yesterday’s deprecation marks a decline from recent highs seen on 12th April where WTI crude futures edged towards $84dpb as investors considered the impact of PEC+’s announcement that they would look to reduce output by some 1.16 million barrels per day from May until the end of 2023.

Rising Inflation Causes Clash Between Royal Navy and Defence Contractor

The Royal Navy is in a dispute with the UK’s second largest defence contractor Babcock as inflation has driven up the manufacturing costs of five new Type 31 frigates. The deal done in 2019 saw Babcock agreed manufacture the Type 31s at a fixed cost of £250m, though rising inflationary pressures on raw materials and labour have resulted in the project costing an extra £100m. The contractor is thus appealing to the MOD to cover the costs of the project with the group saying that they could not have foreseen rising cost pressures. According to Babcock, “Without recovery of the additional costs, the contract would be loss-making and our preliminary assessment, subject to finalisation and audit, is that a one-off provision of between £50m and £100m would be required to cover the duration of the contract.”

If no deal can be reached, it is likely that an arbitrator may be called in to judge the dispute and the case highlights yet another trial and tribulation in the UK’s inflation story.

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