Thursday 20 October 2016 10:19 am

Sterling slips after shoppers scale back in September

The pound has started the day nervously after new figures showed consumer spending is starting to slow and attention to turns to central banks in the Eurozone and the US.

Sterling was down 0.2 per cent against the euro at €1.1175, and lost a touch of ground against the US dollar to stand at $1.2267

Retail sales data, published by the Office for National Statistics (ONS) this morning, showed the high-street flat-lined in September, prompting economists to point to a gradual softening of consumer confidence in the year ahead.

Compared to September last year, sales were up by 4.1 per cent, although that was down from bumper growth of 6.6 per cent recorded in August and below expectations for a rate of 4.8 per cent. Over the first full three months after the referendum, spending held up running at its joint-highest rate since early 2015.

Analysts said Summer spending was buoyed by a jump in "staycations" and an influx of overseas tourists cashing in on the fall in sterling.

Capital Economics' Ruth Gregory said: "Despite retail sales remaining flat in September, spending on the high street held up well over the third quarter as a whole.

"However, we very much doubt that this strength will last in the face of softer employment and wage growth and higher inflation."

Inflation jumped to one per cent in September, its highest level for 22 months, and economists believe the pace of price rises will accelerate sharply as businesses begin to pass on the higher costs they are facing as a result of sterling's slump.

Economists, including World First's Jeremy Cook suggested this would be likely to materialise at the start of next year, with shops likely to do all the can to keep prices down ahead of the crucial Christmas shopping season.

Dennis de Jong of UFX.com said chancellor Philip Hammond will also be placing a lot of hope in the economy's performance over the next few months. He said: "With the busy Christmas period rapidly approaching, Hammond will be hoping that shoppers forget the falling pound and hit the high street in their droves to help boost the economy."

Sterling is likely to come under some pressure later today, although – for once – that will be driven by more fundamental, rather than political, developments. Mario Draghi, president of the European Central Bank (ECB) will be grilled about his own monetary policy plans later this afternoon, with rumours the Eurozone could begin to scale back its own quantitative easing bond-buying programme. Depending on how hawkish his comments are, the euro could bounce, heaping more pressure on sterling, which is already hovering at multi-year lows.

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