Sterling KO, retail sales down and government borrowing increasing — MercoPress

Gloomy picture of UK economy: Sterling KO, retail sales fall and government borrowing rises

Saturday, October 22, 2022 – 10:20 UTC

Sterling's volatility came after official figures showed government borrowing rose to its second-highest level since September
Sterling’s volatility came after official figures showed government borrowing rose to its second-highest level since September

Sterling ended trading at $1.12 on Friday, having risen on Thursday following the announcement of Prime Minister Liz Truss’ resignation on Thursday. However, the new figures painted a bleak picture of the UK economy.

Sterling’s volatility came after official figures showed government borrowing rose to its second highest level since September. Meanwhile, people are shopping less than before the pandemic, according to figures from the Office for National Statistics (ONS).

Retail sales fell more than expected last month, falling 1.4 percent and continuing to fall since August, official figures showed.

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The pound’s latest slide comes after a period of volatile trading for the currency. Government borrowing costs also rose on Friday.

A slide in the US dollar against a range of currencies late on Friday helped the pound regain some ground.

Jane Foley, a currency strategist at Rabobank, said much of the pound’s movements were being driven by investors reacting to political and economic uncertainty in the UK, as well as negative economic data.

“While sterling rallied yesterday on Truss’s resignation, I think investors have realized today that there is no guarantee that we will get a market-friendly outcome from the Tory leadership contest,” she said.

Chancellor Jeremy Hunt is due to announce spending and tax plans on October 31 in his economic plan, which the Treasury has confirmed will go ahead, although there are reports it could be delayed by the leadership race.

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Ms Foley said this uncertainty was also weighing on the pound.

A fall in the value of the pound raises the price of goods and services imported into the UK from abroad – because when the pound is weak against the dollar or the euro, for example, it costs more for UK businesses to buy things like food, raw materials or parts from abroad.

A weaker pound can also push costs up if companies choose to pass on higher prices to customers. For people planning a trip abroad, changes in sterling affect how far their money will go abroad.

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Inflation also rose to 10.1% last month and is expected to rise further. The Office for Economic Statistics, the ONS, said all types of shops saw sales fall, with grocery stores particularly hard hit.

Britain is borrowing billions of pounds to limit rising energy bills for households and businesses.

Borrowing – the difference between spending and tax revenue – was £20bn last month, up £2.2bn on last year, the Office for National Statistics (ONS) said.

It is the second-highest September borrowing since monthly records began in 1993, the ONS said.

But economists warned that government borrowing would rise further in the coming months.

The Office for Budget Responsibility (OBR) makes independent forecasts of the impact of government decisions on things like tax and spending on borrowing and economic growth.


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