Market Focus for 22 JAN 2010: U.K. Retail Sales

[imperialfxonline]

Market Focus for 22 JAN 2010: U.K. Retail Sales

Sales to rise 1.1% in December following surprise drop in November
Consumers increased purchase ahead of VAT reset to 17.5% in January
BRC sees ‘very tough’ year in 2010

U.K. retail sales data for the month of December will be released on Friday 22nd January at 09:30GMT and following the unexpected -0.3% fall seen in November (compared to the market consensus forecast of 0.4%), economists are anticipating sales figures to rebound in December and rise by around 1.1% month-on-month and 3% year-on-year.

The jump in retail sales will be attributed to Christmas shopping and post-Christmas clearance sales, as well as the rush by consumers to make purchases ahead of the reset of the value-added tax (VAT) on January 1 to 17.5% after it was temporarily lowered to 15%. In addition, the severe winter in the U.K. is also likely to increase spending on clothing and inflation in food prices will give a boost to revenue for supermarkets.

The second half of 2009 has seen only slight increases in sales figures (August was flat) and although an upbeat figure is expected for December, retailers should face a ‘tough year’ in 2010, according to British Retail Consortium (BRC) director general Stephen Robertson, who also said in an interview with the Sunday Telegraph earlier this month that there may be no growth in sales as households look to save more and the possibility of higher taxes (including the new 50% top rate of income tax for high earners which will come into effect from April) will limit consumers’ spending power further.

An increase of only 0.8% or less in the monthly figure should send sterling lower, with gbp/usd already falling up to 2% from this week’s high of 1.6458. Gbp/jpy will also fall sharply on increased risk aversion while the eur/gbp will find more support to stage a corrective bounce. A strong rise of 1.5% or higher will give only a brief boost to sterling given the less-than-optimistic outlook for retailers in early 2010.


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