By Samuel Indyk
Investing.com – A raft of UK data releases were released on Friday and taken together they showed a mixed picture on the UK economy. Consumer confidence hit an 11-month high, retail sales were the second worst on record, government borrowing showed a January deficit for the first time in 10 years, and the flash PMI surveys were stronger than forecast but services sector was still in contractionary territory. Taking it all into account, GBP has strengthened with GBP/USD trading above 1.40 for the first time since 2018.
RETAIL SALES
Retail sales fell 8.2% in January, the second worst month on record after April last year. The ONS noted that department and clothing store sales were particularly affected. Hardly surprising given the national lockdown impacting the whole of the UK.
“The decrease was not as large as that of the first lockdown as some stores have adapted to the current circumstances, with services such as click and collect helping to cushion the fall,” Jonathan Athow of the Office for National Statistics said. “The share of online sales soared to a record high and accounted for over a third of total spending.”
PMI Surveys
The IHS Markit flash PMI survey for February beat expectations with the composite output index rebounding and showing only a fractional decline in output.
“The UK economy showed welcome signs of steadying in February after the severe slump seen in January, albeit with business activity remaining sharply lower than late-last year due mainly to the ongoing national lockdown,” IHS Markit Chief Economist Chris Williamson commented. “Although the data hint at a renewed contraction of the economy in the first quarter, business expectations for the year ahead improved to the highest for almost seven years, suggesting the economy is poised for recovery.”
Consumer Confidence
The GfK consumer confidence index rose five points to -23 in February with UK consumers at the most confident since the pandemic began affecting these shores, lifted by the vaccination programme amid hopes it will boost the economy.
“We need to be cautious because the positive tailwinds of the vaccination roll-out are being met by the very strong headwinds of unemployment, the threat of inflation and the difficulty that many face in affording day-to-day living costs,” GfK client strategy director Joe Staton said.
Government Borrowing
UK government borrowing hits its highest January level since records began in 1993 as the various public support measures, such as the furlough scheme, continue to hit public finances. It was the first time in ten years the government was in a deficit in January, a month usually in surplus due to tax returns and other income.
The Chancellor is due to announce his budget on March 3rd where he is expected to outline the strategy for exiting some policies and restoring public finances to more sustainable levels.
"Once our economy begins to recover, we should look to return the public finances to a more sustainable footing," Sunak commented on today’s figures.