Europe Ahead: UK’s Retail Sales are expected to rise in October

ecPulse.com

The British economy showed improvement in the previous period, more specifically starting from the second quarter, but still there are some signs showing that the economy may suffer to escape the recession. The pace of contraction eased in the second quarter to 0.6% then 0.4% in the third quarter which is considered a progress compare with the 2.4% contraction witnessed in the first 3 months of the year.

However, the economy failed to emerge from recession like other major economies which implies that there were some hidden problems that appeared as the bubble burst. Today, the U.K. will release retail sales for the month of October with expectations to 0.5% from 0.0% on the month and from 2.4% to 2.9% on the year.

Retail Sales stagnated in August and September as citizens spent less on food and clothing due to the escalating jobless rate and credit squeeze as the economy is still mired in recession. Sainsbury, the third-largest supermarket in the U.K., posted a decline in sales in October and is expecting more difficulties in the coming period.

Unemployment is currently at 7.8% or 2.46 million people where Claims for jobless benefits surged by 12,900, while the number of job seekers in the three months through September soared 30,000, reflecting the there some companies that are still shedding jobs to cut expenses despite the slowdown in the rate in August and September.

On the other hand, the credit conditions are still fragile as there are many banks asking for government bailouts. Royal Bank of Scotland will receive 45 billion pounds from the government which is considered the highest bailout across all global banks.

Nevertheless, today’s expectations are referring to an improvement in retails sales in October as unemployment slowed down and the BoE is still pumping money to reinvigorate the economy.

The bank of England in November kept the borrowing cost unchanged at 0.5% and raised the Asset Purchase Facility (APF) program by 25 billion pounds to 200 billion pounds to revive growth and spur lending and spending.

Yesterday’s minutes showed that there has been a three-way split where 7 members asked for 25 billion pounds increase to 200 billion pounds, while David Miles wanted to expand the program to 215 billion pounds and Spencer Dale wanted to leave the program steady at 175 billion pounds.

Meanwhile, there is a split as some members see boosting growth and spending is so far more important in the current period while others are afraid of future inflation especially as the economy is showing improvement.

Officials will continue the asset program for three more months; Mervyn King mentioned last week that he has an “open mind” about continuing with the APF program further.