Sterling sinks to 37-year low against dollar as retail sales plummet

THE pound yesterday marked the 30th anniversary of Black Wednesday by plummeting to its lowest level against the dollar since 1985, after data showing a plunge in retail sales fuelled fears over the state of the UK economy.

Sterling dropped to a fresh 37-year low of $1.1348 during yesterday’s session.

It was at 5pm in London trading around $1.1417, down by 0.61 cents on its previous close.

On Black Wednesday, on September 16, 1992, the embattled pound crashed out of the European Exchange Rate Mechanism. According to Reuters’ data, sterling fell 4.3 per cent on Black Wednesday to $1.778, much higher than today’s level.

Sterling was trading close to $1.50 on June 23, 2016, ahead of the European Union membership referendum result. It plummeted on the back of the Brexit vote.

Data published yesterday by the Office for National Statistics showed retail sales volumes in Great Britain plunged 1.6 per cent month-on-month on a seasonally adjusted basis in August. This was more than three times the 0.5% decline forecast by economists in a poll by Reuters, and occurred amid intense pressure on household finances arising from the UK’s cost-of-living crisis. Retail sales volumes in August were 5.4% lower than in the same month of last year. Sales volumes had risen by 0.4% month-on-month in July.

Food store sales volumes declined by 0.8% month-on-month in August. There was a 1.9% month-on-month drop in non-food store sales volumes.

Comparing the three months to August with the March to May period, retail sales volumes in Great Britain were down 1.1%.

Michael Hewson, analyst at CMC Markets UK, said yesterday: “This morning’s sharp decline in August retail sales of 1.6% speaks to an economy that is probably already in recession, having already seen a 0.1% GDP (gross domestic product) contraction in Q2, and likely to see a similarly weak performance across Q3.”

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Susannah Streeter, senior investment and markets analyst at stockbroker Hargreaves Lansdown, said: “It’s Bleak Friday for the pound, amid worries the UK has hurtled into recession, as the cost-of-living crisis intensifies and confidence in the Government’s ability to prompt an economic turnaround fades. It’s a chilling repeat of the dismal day, 30 years ago, when sterling faced another crisis and spectacularly crashed out of the European Exchange Rate Mechanism. Three decades on, Black Wednesday has a new rival in the notoriety stakes for the pound.”

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She added: “This time its decline is being sparked not just by a deteriorating UK economy, but a mighty dollar and the fearless approach by the Federal Reserve in hiking rates. Sterling reached fresh 37-year lows, to trade at $1.13, after a worse-than-expected snapshot of retail sales which highlighted the sharp nature of the slowdown.”

Martin Beck, chief economic adviser to the EY ITEM Club think-tank, said: “The downward trend in retail sales volumes resumed in August. Volumes fell by a notable 1.6% month-on-month...This left sales 5.4% down on a year earlier and at the lowest level since February 2021. The details of August’s numbers offered no bright spots either. All the major retail categories saw sales fall, with a particularly significant decline in department store sales, down 2.7%...

“Pressure on households’ spending power from high inflation, along with low consumer confidence, are two likely reasons for August’s retail weakness. But the Government’s announcement of a price cap on household energy bills from this October should ease both the income squeeze and lift consumers’ sentiment, suggesting the outlook for retailers isn’t as gloomy as could have been the case.”

The ONS said: “Retail sales volumes fell by 1.6% in August 2022, continuing a downward trend since summer 2021 following the lifting of restrictions on hospitality; in recent months, rising prices and cost of living are also affecting sales volumes.”

It noted the drop in food sales volumes last month left them 1.4% below their level in February 2020, before the coronavirus pandemic took hold.

Lisa Hooker, industry leader for consumer markets at accountancy firm PricewaterhouseCoopers, observed “shoppers are wasting less and being forced to be more careful with what they put in their trolleys”.

Danni Hewson, financial analyst at stockbroker AJ Bell, said: “Big-ticket purchases are being put off and that’s unlikely to change in the coming months. Even if inflation does begin to cool significantly, it doesn’t mean prices aren’t still rising and the hikes already implemented won’t just be reversed. The cost-of-just-living has become dearer. For some it’s become unaffordable, for many others it’s become troublesome.”

She added: “With the expectation of further interest-rate rises, with the nights drawing in and recession on the horizon, retail sales are likely to be under ever-increasing pressure. People will still spend this Christmas, but they’ll do it thoughtfully and retailers will have to slug it out for our hard-won cash with the hospitality sector.

“After last year’s disappointments, people will want to socialise and they’ll want to take a beat to put their troubles aside and share a pint and laugh with family and friends.”

Sterling fell to an 18-month low against the euro yesterday, with the single currency rising as high as 87.84p.