Although the prime minister’s mantra no longer involves staying at home, the change came nowhere near soon enough to get folk into the shops in April. The British Retail Consortium reported overnight that sales were down by “a staggering 19.1%” compared with the same month last year.
Sterling is an average of 0.8% lower, with only the NZ dollar having a worse day. But it was not the retail sales numbers that scuppered the pound. It lost ground steadily after turning lower at lunchtime, hurt by the perception, of some, that the government is doing badly in its management of the pandemic.
Developments that would have been positive for the pound a month ago are now seen as signs of weakness. Chancellor Rishi Sunak’s original decision to pick up the tab for 80% of furloughed workers’ salaries received an enthusiastic reception. His announcement on Tuesday that he would extend the scheme until the end of October went down less well. At the end of July employers will have to decide whether to share the burden, chipping in perhaps a quarter of the cost themselves, or to make jobs redundant.
Negative rates debate
Not one to miss a publicity trick, the US president has weighed into the monetary policy debate once again, this time pressing the Fed to take the funds rate below zero: “As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the ‘GIFT’. Big numbers!”
Publicly, decision-makers at the Federal Reserve remain unconvinced about the benefits of negative rates. The same is true of Bank of England deputy governor Ben Broadbent. He told CNBC on Tuesday that “it is quite possible that more monetary easing will be needed” but “dismissed the likelihood of negative rates”.
The Reserve Bank of New Zealand has a more open mind on the matter. After the governor announced this morning that he would almost double the Large Scale Asset Purchase (QE) programme from $33bn to $60bn, he held a press conference. Adrian Orr said “we would not rule out OCR cuts into negative territory next year”. His comment put the Kiwi to flight. It was the only major currency to have a worse day than sterling, losing a cent and a third.
Better or not as bad
Tuesday’s economic data passed by almost unnoticed. The same might be true of the rest of today’s figures but at least the opening shots attracted some attention. Britain’s gross domestic product shrank by “only” a provisional 2% in the first quarter. A 2.5% contraction had been on the cards.
It almost goes without saying that whatever happened in Q1 will look wonderful in comparison with the inevitably deep slump in Q2. However, investors’ initial reaction was quite charitable towards the pound. The numbers for manufacturing and industrial output in March contributed to that mood by being less negative than forecast (manufacturing production was down by a mere 9.7% on the year).
The remaining data on London’s agenda today cover Swedish inflation, Euroland industrial production and US producer prices. Fed chairman Jay Powell will be speaking this afternoon. Tonight the RICS reports on UK house prices and Australia releases the employment data form April.