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U.K. retail sales volumes fall sequentially in September, consumer spending growth to be firmer in Q3

U.K retail sales volumes dropped sequentially in September. Retail sales volumes fell 0.8 percent following a downwardly revised 0.9 percent rise in August. A certain amount of mechanical fall back was expected in today’s report, given the increases recorded in the past few months. The downside risks heightened by the rise in inflation in September delivered a much bigger decline in volumes than consensus expectations. The annual growth rate decelerated to 1.2 percent from 2.4 percent. Declines were seen in most of the main categories of spending.

The retail sales data released today gives additional picture of the GDP growth in third quarter, although the mechanical read throughout is confined just to output in a part of the distribution sector, comprising about 5 percent of GDP. In the third quarter as a whole, sales volumes rose 0.6 percent, down from 1.1 percent pace recorded in the second quarter. But as retail sales cover just around a third of consumer spending, the mapping to overall consumer expenditures is still just approximate.

“We still expect consumer spending growth to be a little firmer in Q3, relative to the 0.2 percent q/q pace recorded in Q2, although based on today’s report the upside risks to this forecast look capped”, noted Lloyds Bank in a research report.

Increased inflationary pressures appear set to continue sapping household purchasing power. The rate of high street price inflation accelerated in September, with the retail deflator reaching 3.3. percent year-on-year from 3.1 percent year-on-year in August, its highest rate since March 2012, stated Lloyds Bank.

At 15:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral at -12.6802, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -33.5306. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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