Poor UK data undermined the outlook for the UK economy, causing the GBP ZAR exchange rate to slump to a three-and-a-quarter-year low of 16.07 last week.
Pound Sterling Tumbles on Weak Outlook for Consumer Spending
The outlook for UK consumer spending took a battering last week thanks to a series of poor data releases.
Tuesday’s consumer price index rose to 1.8% on the year in January, but this was slightly lower than markets expected. Slower-than-expected inflation suggested that the Bank of England (BoE) may have been right to make only a minor adjustment to Q1 inflation forecasts for the current quarter. The chances of policy tightening lessened and the Pound slumped.
Things only got worse on Wednesday and Friday. Average weekly earnings figures for the three months to December last year showed wage growth unexpectedly slow from 2.8% to 2.6%. Sluggish wage growth will make it harder for households to accommodate rising prices and this could slow consumer spending.
Friday’s retail sales data suggested this was already happening. January saw year-on-year sales growth tumble from 4.7% to 2.6% – well past the 3.9% expected. Monthly sales continued declining, with the slowdown in pace from 2.2% to 0.2% providing little comfort given the forecasts for 0.7% growth.
The Pound is bullish today as investors hope that the current debate on the Article 50 bill in the House of Lords will result in some amendments being made that restrict Theresa May’s chances of securing a ‘Hard Brexit’.
Mixed South African Data Fails to Prevent 13-Quarter Low for GBP ZAR
Investors were cheered on Tuesday to see a fall in unemployment during the fourth quarter of 2016. The rate of joblessness had been expected to climb twenty basis points to 27.3%, but instead dropped to 26.5%. Although a positive sign, at 5.8 million the number of unemployed South Africans is still enormous.
Wednesday’s news offered a mixed bag, but the South African Rand was able to advance against the Pound thanks to the worsening outlook for UK consumer spending. South African inflation data for January showed that price growth edged lower.
While this suggests the South African Reserve Bank (SARB) has reached the end of its monetary tightening cycle – weakening the outlook for ZAR – this is still welcome news amongst the markets. Price growth had risen above SARB’s target range and is at risk of overheating. A slowdown indicates more stable price growth.
Retail sales were less positive, however. Not only were November’s growth figures cut, but December’s sales slowed to 0.9% on the year and fell -2.3% on the month. Still, the worsening outlook for the UK kept the South African Rand buoyant and the GBP ZAR exchange rate dropped to a three-and-a-quarter year low of 16.07.
GBP ZAR Forecast; Parliamentary Back-and-Forth to Distract from UK Data?
Although there are data releases due for the UK over the coming days, it is likely the Pound will track political developments rather than ecostats. Should the Lords successfully amend the Article 50 bill, the legislation will have to return to Parliament for MPs to vote on the changes. A bout of Parliamentary ping-pong could therefore ensue, which is likely to roil the Pound.
South African data is thin over the coming days. Thursday offers producer price indices for January. Input costs have be rising considerably and another monthly increase is expected. With inflation still trending around the top of SARB’s target, investors would likely prefer to see weakening costs here.
Money supply and trade figures due next Tuesday will also be of interest.