UK Retail Sales Unexpectedly Rise

UK Retail Sales Unexpectedly Rise 

UK retail sales rose unexpectedly this morning having increased 0.5% on a month-on-month basis for January. This was a well above market expectations of a 0.3% contraction, though the prevailing markets view is one of pessimism when it comes to the retail sales environment more generally. Indeed, Darren Morgan the ONS’ Director of Economic Statistics stated that "after December's steep fall, retail sales picked up slightly in January, although the general trend remains one of decline". Sales at non-food stores rose 0.6% following last week’s slump of 2.1% while sales at food stores fell 0.3%, suggesting that many households are cutting back given the rising cost of living.

As such, retail sales remain 1.4% below their pre-pandemic levels and the rising cost of living along with the forecasted recession may see this contraction continue to rise. Indeed, this month’s rise follows December’s 1% contraction and November’s 0.5% contraction with those two months being held up somewhat by October’s 1.2% rise – though of course this followed September and August’s respective 1.6% and 1.4% contractions.     

The first month’s print for 2023 follows data published last month which indicated UK retail sales witnessed their worst year since records began in 1997 over 2022.   

Japan Posts the Largest Trade Deficit on Record

Yesterday, Japan posted the largest trade deficit on record hitting 3,496.6bn JPY in January, marking the 18th consecutive monthly rise. This figure involves imports climbing 17.8% on an annualised basis, while exports rose at a modest 3.5% (the softest growth since April 2021).

Last year saw Japan’s current account surplus cut in half, hitting a 22 year low as the yen plummeted against the dollar and the value of energy imports soared This meant that their current account surplus sunk to eight-year lows and equated to a year-on-on decline of ¥10.15 trillion. Over 2022, as the yen sank to above 150 against the US dollar (a fall of close to 20%), Japan logged a record year for primary income (which is made up of foreign investment revenues from Japanese companies subsequently repatriated). Incredibly, this figure rose fourfold up from the previous year. 

Looking forward at Japanese growth more generally, the IMF recently cited “pent-up demand, supply chain improvements, border reopening, and policy support” as reasons to support growth in Japan throughout the course of this year. Nevertheless, geopolitical instability within the region and uncertainty over the health of the Chinese economy is also cause for concern, as is inflation which continues to be at levels not seen for four decades while the BoJ reluctance to move its YCC in line with market pressure continues to cause problems for the central bank as they buy up bonds in droves.

Sunak Flies to Belfast for Northern Ireland Protocol Talks

This morning has seen Rishi Sunak fly into Belfast for the latest round of negotiations over possible amendments to the NI protocol. It is expected that he will meet with local party leaders to try and bring about a bipartisan agreement which will break the stalemate in Stormont. Nevertheless, scepticism remains over how ready such an agreement is, with one BBC correspondent stating this morning that “diplomats in Brussels agree that a compromise plan isn't quite there, yet.”

Presently, the Northern Ireland Protocol remains in place having been ratified by the UK and EU in 2019 and allows for the free movement of goods to take place across the border between NI and the ROI. Nevertheless, given the political sensitivities of establishing a physical customs border on the Island of Ireland, Westminster and Brussels agreed to establish controls on goods entering Northern Ireland from Great Britain – a state of affairs which has been vehemently opposed by the DUP while Sinn Féin accepts the protocol. Such has been the DUP’s opposition to the NI Protocol, the unionists have continually blocked electing a speaker in Stormont which acts as a prerequisite to forming a government.

Looking Ahead: People’s Bank of China Interest Rate Decision

Monday morning will see the release of the People’s Bank of China Interest Rate Decision where the general market consensus is expecting them to keep rates unchanged. The PBoC’s base interest rate has been at 3.65% since August 2022 as inflation currently sits at 1.8%. Over the last year, the health of the Chinese economy has been characterised by intermittent municipal lockdowns which have hampered growth and demand, which has in turn kept inflation in check. Concerns over the stability of the Chinese property market also continue to make headlines with the indebted developer Evergrande being at the forefront, dampening businesses and consumer sentiment and investment. Thus, given their relatively low levels of inflation and fears over growth, the PBoC are keen to ensure that their monetary policy is not overly restrictive and as such the market forecasts that they will keep to the status quo.