Retail sales unexpectedly decline; GBPUSD < 1.30

The latest consumer spending figures for the UK have shown an unexpected contraction and sent the pound tumbling below the 1.30 mark to trade at its lowest level since September against the US dollar. The prior reading was revised marginally higher but there’s little disguising the fact that this is a weak data point, with retail sales dropping despite the good weather and England’s world cup heroics.

Up until just two days ago an August hike from the Bank of England had looked probable but the combination of lower than expected inflation and soft consumer spending, despite a favourable backdrop have certainly given Governor Carney and his fellow rate-setters some food for thought.

Should the BoE once more stand pat they will no doubt be widely criticised for failing to deliver on their forward guidance, so it now seems that they may opt for a dovish hike. The underlying economy is clearly not at a level yet that warrants a sustained hiking cycle, but with the bank’s credibility in danger of coming under more scrutiny the prudent approach may be to hike next month, but in a way that stresses that further tightening will be contingent on an improvement in economic data.   

Sports Direct shares slump

There’s been a sizable drop in the share price of Sports Direct this morning after the firm reported a 73% drop in pre-tax profits to £28m. A large part of the decline can be explained by the group’s holding in fellow retailer Debenhams, which delivered a hit of £85M with the value of Sports Direct’s near 30% holding falling sharply as Debenhams shares have tumbled from 35p at the start of the year to 12p on a series of profit warnings.

The group, which is controlled by billionaire Newcastle United owner Mike Ashley, chose to focus on what it calls the “underlying” results, in other words ignoring the investment portfolio including firms such as Debenhams, and to be fair if these figures are looked over then the results appear far more favourable. Underlying EBITDA without these investments came in at £306.1m while pre-tax profits on the same basis would have been £104.9m.

Shares ended yesterday close to their highest level in over two years near £4.35, but a drop of more than 6% shortly after the open has seen them change hand below the £4 mark in early trade.   

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