UK Retail Sales Downturn as Economic Fears Rise

• The UK retail sales fell by 0.1% in October
• There are no macroeconomic releases scheduled in the UK this Friday
• EU’s and German’s GDP expand modestly

The UK economic outlook is weakening this week, the  EUR/GBP  pair has fallen from 0.865 to 0.854 ant the current price stands around 0.856. The UK’s Prime Minister Johnson said recently that the government would not be extending the Brexit transition period beyond January 31st. The situation around Brexit has a big influence on this currency pair, and the early election will be the prime GBP driver in the coming weeks.

According to analysts, the Conservative Party will gather enough support to pass Boris Johnson’s Withdrawal Agreement. The UK main opposition party has declared it will seek to nationalize telecom giant BT and the political issues will remain at the forefront for the UK.

The UK retail sales fell by 0.1% in October

The latest economic news from the UK was quite discouraging. The UK retail sales fell by 0.1% in October which is below the market’s expectations. The UK also announced this week that the kingdom’s Total Trade Balance posted a £ 12.541B deficit, while Industrial Production declined by 0.3% MoM and by 1.4% YoY. It is also important to note that manufacturing production also declined in the same period yet the UK avoided recession, growing by 0.3%, slightly below the 0.4% expected.

The latest economic data from the EU also failed to impress. The EU’s and Germany’s GDP increased slightly in the third quarter of the year but this is not enough according to the analysts. Signs of a further economic slowdown in the Union are keeping the upside limited for this currency pair for now. The European Central Bank left its monetary policy unchanged at its latest meeting, and the economic slowdown continues entering Q4. Inflation in the EU is still below expectations and this situation confirms speculation that the ECB won’t hike rates until 2020. The ECB´s president, Christine Lagarde, also warned that the uncertainty related to geopolitical factors is a threat to economic growth. 

Background noise and conclusion

The EU markets are mixed this Friday but the FTSE 100 is the only major index in the red today. The latest economic data from the EU failed to impress and the situation in the UK is not much better.  The Union’s economy remains at risk of recession and the market is waiting for the ECB meeting next Thursday.

The pound is supported currently by the fact that the Conservative Party continues to hone in on its rivals. This currency pair is highly sensitive to the early election in the UK and the final outcome of Brexit. The EUR/GBP pair is less volatile than other euro or pound based crosses because of the economic closeness and interdependence between the two.