Sterling plunged on Friday (February 17th) after some very soggy retail sales numbers for the UK hints at a slowdown in spending. The consumer –driven post-Brexit bounce may be fading. The pound dived half a cent on the release but managed to hold above Wednesday’s low of 1.2386.

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Retail sales have lost their lustre as growth slowed to its weakest in over three years in January. Sales were down 0.3% from December and the three-month data shows a 0.4% drop for the quarter. The underlying three-month trend fell for the first time in three years too.

A year ago, January retail sales were up 5.2% yoy, compared with 1.5% today. January 2016 sales were also 2.3% ahead of December 2015. Quarterly figures were up 1.4%. All the numbers today show a downward trend and the anticipated knock to consumer spending from rising inflation may already be evident. Households are clearly starting to feel the effects of the pound’s fall in value and this will only get worse as prices rise over the coming months as hedging contracts expire.

Consumer spending is now starting to weaken and this is bad news for the UK economy, which has been very resilient so far since June because consumer sentiment has been good. However most of this confidence, which helped send the UK to the top of the G7 for growth last year, was driven by high levels of consumer borrowing. Bank of England figures show a slowing in consumer debt between Nov and Dec and this is hitting retail sales.

The trend shows spending peaked last autumn and is now sliding. Sales in January were down 0.3% from December, which in turn was 1.9% lower than November 2016. If consumer spending has hit a top, we may be in for a rough ride in 2017, especially retailers. Shares in Tesco and Marks & Spencer were among several to drop sharply on the dismal retail sales data.

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