UK retail sales fall sharply in December, US consumer confidence dips - as it happened

Angela Monaghan (until 2.20pm) and Nick Fletcher

from on 2018-01-19 17:43 (#3DPTG)

UK retail sales fell by 1.5% in December in the latest sign that consumers were feeling the strain of falling real pay over the crucial Christmas shopping period

5.43pm GMT

Despite the stronger euro as the dollar weakens, European markets have ended the week on a positive note with the Stoxx index at its highest level for ten years. Growing hopes about company earnings and growth in the economy have combined to offset any negative concerns.

In the UK the FTSE 100 has also finished higher, despite a weak performance from retailers after disappointing high street sales figures for December. In the US, early optimism has receded, as investors await news on whether the government faces a shutdown. Worse than expected US consumer confidence figures have also hit sentiment. The final scores showed:

5.26pm GMT

Here's our latest on Carillion. Rob Davies writes:

The chair of the British Medical Association has demanded answers about the future of two major hospitals that Carillion was building when it collapsed, amid mounting concern about the impact of any delays on stretched NHS services.

Patients' groups joined the doctors' trade body in calling for clarity after local NHS trusts admitted that work on the 335m Royal Liverpool University and Birmingham's 350m Midland Metropolitan hospitals is on hold.

4.10pm GMT

Dr Harm Bandholz, chief US economist at UniCredit, agrees the impact of a US government shutdown should be modest. But given that could be the case, it might make such a move more likely. He said:

The impact of a shutdown, if it happens, on the economy should be very limited as it affects only so-called 'non-essential' government services. Financial markets may also be inclined to discount this renewed display of dysfunctionality in Washington as the tax bill has already been passed. This could be yet another reason why Democrats as well as Republicans may be willing to take a stand and shut the government down That said, they currently still have another 13 hours to prevent such an embarrassment.

4.00pm GMT

How bad would a US government shutdown be. Paul Ashworth at Capital Economics said:

It is still possible that Congress will reach a late deal to avoid a partial government shutdown, but the chances of agreement seem to be slipping away. That said, even if it lasted for a week or more, a shutdown would have only a modest impact on first quarter GDP growth.

3.56pm GMT

Oil prices are on track for their biggest weekly fall since October as a recent rally fizzles out.

A rise in US production has outweighed declines in inventories, and the output cap agreed by Opec and Russia. Analysts had always expected US shale producers to ramp up their activities as the crude price recovered, providing a counterpoint to the Opec attempts to reduce supplies. The International Energy Agency said in its latest report that global oil stocks had tightened, but it pointed out that the US production increases would have an impact.

3.32pm GMT

Back with UK retail sales, and while the FTSE 100 might be in positive territory, the representatives from the high street are having a bad day all round.

B&Q owner Kingfisher is down 2.6%, the biggest faller in the leading index. It has been hit by, not only the disappointing retail sales figures themselves, but also the profit warning from Carpetright, suggesting big ticket home improvement items are off the agenda at the moment for UK consumers. Carpetright meanwhile is down a massive 43%.

3.12pm GMT

The survey indicated some uncertainty about Donald Trump's tax cuts, especially the timing of any benefits to consumers, but the bulk of those questioned though the reform would be positive. The survey's chief economist Richard Curtin said:

While the preliminary January reading for the Sentiment Index was largely unchanged from last month (-1.5%), consumers evaluated current economic conditions less favorably (-4.6%). This small decrease in current conditions produced a small overall decline. Importantly, the survey recorded persistent strength in personal finances and buying plans, while favorable levels of buying conditions for household durables have receded to preholiday levels in early January, largely due to less attractive pricing. The Expectations Index remained virtually unchanged at 84.8.

Tax reform was spontaneously mentioned by 34% of all respondents; 70% of those who mentioned tax reform thought the impact would be positive, and 18% said it would be negative.

The disconnect between the future outlook assessment and the largely positive view of the tax reform is due to uncertainties about the delayed impact of the tax reforms on the consumers. Some of the uncertainty is related to how much a cut or an increase people, especially high income households who live in high-tax states, face

3.03pm GMT

Meanwhile the latest US economic indicator has come in below expectations.

The University of Michigan survey of consumer sentiment came in at 94.4 in January, down from December's final figure of 95.9 and below analysts' forecasts of a rise to 97.

3.01pm GMT

Although of course there are contigency plans being put in place, just in case the US government does shut down......

IT'S GETTING REAL: Pentagon just put out 14 page official guidance for a #shutdown . Expect it to be posted fully on https://t.co/uAhj078O5p shortly.

2.58pm GMT

Here's our piece earlier on the attempts to prevent a US government shutdown:

2.46pm GMT

As expected, US markets have made a positive start, with investors seemingly untroubled by the prospect of a government shutdown. As well as the feeling that a resolution will be found at a vote in the Senate later, the political risks are overshadowed for the moment by optimism over company results during the earnings season.

So the Dow Jones Industrial Average is 12 points or 0.07% higher while the S&P 500 opened up 0.24% and the Nasdaq Composite 0.32%.

2.21pm GMT

There are a couple of potential market moving events ahead in fact:

Two major uncertainties which hopefully will be resolved over the weekend: Senate vote on spending bill to avoid US government shutdown; Merkel/SPD coalition talks to try and form German government. No pressure #USD #EURUSD #DJIA $SPX #DAX30 pic.twitter.com/j63wzIcMtW

2.17pm GMT

Craig Erlam, analyst at the currency firm Oanda, says US investors are likely to shrug off fears over a US government shutdown when the opening bell rings on Wall Street:

US equity markets are seen reversing Thursday's losses at the open on Friday, even as investors prepare for the first government shutdown since 2013 if the Senate doesn't pass a temporary spending bill.

Investors don't appear particularly bothered about the prospect of a government shutdown, with the assumption being that one will eventually be signed and any economic impact will be minor or non-existent.

2.03pm GMT

The backdrop for UK consumers will remain tough in 2018 before easing in 2019, according to Andrew Sentance, senior economic adviser at PwC.

Commenting on the weak retail sales data out this morning, the former member of the Bank of England's Monetary Policy Committee says:

Taking 2018 as a whole, prices are still likely to increase more than wages, so this will be another year of consumer squeeze. As a result, we expect economic growth to be around 1.5%, not disastrous, but disappointing compared with the mid 2010s.

Weak consumer spending will continue to be a drag on the UK economy in 2018, but the prospects are brighter for 2019 and beyond - as long as we get a reasonable Brexit deal with the other EU-27 countries.

1.32pm GMT

Greece has won rare praise today from EU commission's chief spokesperson, Margaritis Schinas, fuelling hopes that debt relief talks could soon be in the offing. Helena Smith reports from Athens:

Four days after MPs endorsed more biting austerity measures and reforms in a rowdy parliamentary vote, Greece's fiscal progress was roundly applauded by the man more usually associated with tough words for the country.

1.19pm GMT

Back in 2015, Yanis Varoufakis said he Alexis Tsipras whether he was "completely stupid"* after the Greek prime minister agreed to a demand by international creditors in for large primary surpluses.

Speaking to Parapolitika radio about his time as Greek finance minister, Varoufakis said:

I told him: 'Are you completely stupid? What did you get in return?' And he said: 'Oh, did I do something stupid? It's OK, we'll take it back'.

Varoufakis told Tsipras he was 'stupid' to accept surplus goals https://t.co/5WYZxorz68 pic.twitter.com/BnxIgdJ9mG

12.32pm GMT

Here's quick markets round-up from Mike van Dulken, head of research at Accendo Markets:

Equities are positive to close out the week, rebounding from a negative US close and ahead of a key Senate vote to stave off a government shutdown tonight. Weaker than expected UK retail sales have seen the UK's blue chip index take a leg higher, benefiting from sterling's retreat from fresh post-referendum highs earlier this morning.

Interestingly, Germany's DAX is the rank outperformer, this in spite of additional euro strength after hawkish ECB comments, whilst US equities point towards a positive open this afternoon. The FTSE has climbed higher thanks to the pound's weakness...while miners are embracing the weaker dollar's fillip for metals.

12.18pm GMT

It's that time of year again when world leaders and big thinkers prepare to head to the Swiss ski resort Davos to debate the most pressing social and economic issues.

Angela Merkel, the German Chancellor, is the latest world leader to confirm her attendance at the event next week, joining Donald Trump, Theresa May, Justin Trudeau and Emmanuel Macron among others.

Merkel will give a speech at Davos in a return to the world stage after months of political stalemate in Germany https://t.co/iG6Qmyishs pic.twitter.com/dkEkE7Ytc2

12.01pm GMT

The work and pensions select committee has written to the pensions regulator with a series of questions on Carillion.

Publishing the letter, Frank Field, Labour MP and chair of the committee, said:

I am pleased that the liaison committee will be investigating Carillion - the company's collapse begs questions across government.

We have some specific concerns on the pensions side. It beggars belief that a company can be allowed to run with such apparent recklessness - and be so lucrative for the directors and shareholders - when it has a giant pension deficit and a mountain of debt.

11.37am GMT

The dollar index, which measures the US currency against a basket of other major currencies, has hit a new three-year low today of 90.331 as fears of a US government shutdown mount.

Analysts at Bank of America Merrill Lynch believe the dollar will recover some ground against the euro in the coming months.

Support for EUR/USD from forward rate divergence may be peaking whilst markets look ahead to the European Central Bank meeting and any commentary on the euro from European Central Bank president Mario Draghi.

EUR/USD could be vulnerable from a dovish Draghi.

11.13am GMT

More here on this morning's dismal UK retail sales data:

11.08am GMT

The STOXX 600, comprising some of the biggest companies across Europe, is at the highest level since August 2015:

11.03am GMT

10.49am GMT

Investors are in buoyant mood this morning, with gains in all major markets despite the strength of the euro and the pound against the dollar.

The FTSE is up 15 points.

10.25am GMT

Ruth Gregory at Capital Economics says the drop in December retail sales signals "a disappointing end to 2017".

We'll get the first official estimate of UK economic growth in the final quarter of 2017 from the ONS next week, on 26 January.

10.08am GMT

Ben Brettell, senior economist at Hargreaves Lansdown, says retail sales did little to boost the economy in the final quarter of 2017.

We've been waiting for the pay squeeze to filter through to the high street, but so far retail sales have held up better than many expected. Today's retail sales data from the ONS disappointed, however, with consumers cutting back on Christmas spending after November's Black Friday splurge. This continues the trend of bringing Christmas spending forward to take advantage of early discounts.

The figures undershot expectations by some margin, falling 1.5% on the month and rising just 1.4% year-on-year. Economists had forecast the latter number at 3.0%. This means retail sales made next to no contribution to UK economic growth in the final three months of 2017.

10.04am GMT

The figures from the ONS show that retail sales on 2017 overall rose by 1.9% - the weakest annual growth rate since 2013.

9.50am GMT

The drop in UK retail sales in December has so far failed to hit the pound, which is still up 0.2% at $1.3918.

Sterling is down 0.1% against the euro, at a1.1332, not far off where it was before the retail figures were published.

9.47am GMT

The sharp fall in retail sales over the month of December (-1.5%) can partly be explained be Black Friday sales, which encouraged shoppers to bring forward some of their Christmas spending to November.

Retail sales continued to grow in the last three months of the year partly due to Black Friday deals boosting spending. Consumers continue to move Christmas purchases earlier with higher spending in November and lower spending in December than seen in previous years.

However, the longer-term picture is one of slowing growth, with increased prices squeezing people's spending.

9.32am GMT

Ouch. UK retail sales fell by 1.5% in December, more sharply than the 0.6% drop forecast by economists.

It was also a lot worse than November, when sales rose 1%.

9.28am GMT

The market value of Dignity, one of Britain's biggest funeral providers, has halved this morning after the company warned that it would have to cut its prices this year as a result of intense competition.

Shares are down 50% at 959p, making it the biggest faller on the FTSE 250.

While the pre-arranged and crematoria businesses are performing strongly with no change to the board's expectations for these businesses, the board is keen to address the continuing acceleration of price competition facing its funeral business.

The board is therefore taking decisive action on its funeral pricing strategy with a view to protecting market share and repositioning the group for future growth. Consequently, the board believes that the results for the period ending 28 December 2018 will be substantially below the market's current expectations.

9.06am GMT

The business secretary Greg Clark was put on the defensive when interviewed about Carillion by Nick Robinson on Today.

Greg Clark has just acknowledged this on #today but insisted that ministers were kept up to speed throughout that period

8.51am GMT

Clark is asked by Nick Robinson why was there no contact between Carillion and senior ministers at any time after the profit warnings, which began in July 2017.

Actually there was substantial contact between the crown commercial service who are responsible for the oversight of public sector contracts. That is the appropriate mechanism, you have senior officials monitoring these contracts. Officials report to ministers.

I think that everyone in the whole country could see the profit warnings that were issued. Many companies give profit warnings, that means they expect to make less money than they had previously forecast.

If the government on each occasion downed tools and said we could no longer do business, that would cause difficulties for many companies that were healthy and viable.

8.38am GMT

On the issue of clawing back bonuses from Carillion's top executives, Greg Clark says the powers exist and will be used where necessary.

The Insolvency Service have very powerful sanctions available here. I wrote to the head of the service to make sure the receiver looked not just at the conduct of the current directors, but the previous ones to see if they had contributed to this collapse.

And the sanctions including the recovery of bonuses that may have been paid are very substantial and they are available to the Insolvency Service.

8.27am GMT

Greg Clark has been on BBC Radio 4's Today programme talking about Carillion and the taskforce meeting he held on Thursday.

He says he is working closely with business organisations, trade unions, banks and the department of work and pensions to make sure everything is done to "maximise the continuity of these small businesses" that were suppliers to the collapsed Carillion.

The job of the official receiver is to wind the company up in an orderly way, to realise the assets, and to deal with creditors claims ... so make an assessment of how much people will get back.

8.11am GMT

Shares in Carpetright have plunged in early trading after a major profits warning. They are down 48% at 85p.

Despite a positive start to our third quarter, we have seen a significant deterioration in UK trading during the important post-Christmas trading period. While average transaction values were up year on year, the number of customer transactions since Christmas was sharply down, which we believe is indicative of reduced consumer confidence.

The severity of the decline in footfall over this key trading period and our more cautious view of the outlook for the balance of the year leads to a significant reduction in our full year expectations.

7.56am GMT

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

The pound is holding on to its post Brexit-vote highs against the dollar, up 0.2% this morning at $1.3917. It is on course for a fifth weekly rise against the US currency.

It's been another decent week for the pound as it looks set to post its fifth successive weekly rise in a row against the US dollar.

A new post Brexit vote high of $1.3943 this week has raised expectations of a move through the $1.40 area in the next few days in the hope that a more convivial tone will develop between Brussels and London as the prospect of the upcoming trade talks looms on the horizon. While that remains highly optimistic, sterling short positions have continued to get squeezed hard.

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