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Astute Market Overview - 22nd August 2023

Welcome to the latest Astute Market Overview.

According to BBC Science Focus, 90% of Brits admit to talking about the weather in the last 6 hours. I certainly fall within that 90% – look at that sunshine.

Well, the scorching hot June and rainy July that we’ve had don’t just leave us pining for a bit more hot weather, they’re also held accountable for a decline in retail sales data. Last week we had the release of UK retail sales, revealing a fall of 1.2% in July vs the previous month, following a rise of 0.6% in June.

The rain reduced footfall on the high street, and non-food stores sales volumes saw a modest fall of 1.7%. It was reported that the falling rain in July reduced clothing sales (we were all digging out our trusty rain coats, perhaps). However, shoppers were spending online, due in part to an increase in promotions, and non-store retailing sales rose by 2.8%, according to the Office of National Statistics.

Whilst the decline in weather in July vs June can partially explain the fall in retail sales, it is also likely that rising costs across the board are leading consumers to cut their coat according to their cloth, which will help to ease inflation.

Since early 2021, there has been a divergence between the volume of goods purchased, and value of goods purchased, that is that the volume has drifted downwards whilst the value has gone upwards. Bringing this back to the real world, since 2021, broadly we are spending more money, and getting less for it.

Over the week, the release of UK CPI inflation confirmed that, yes, inflation is coming down, with July’s measure coming in at 6.8% vs June’s 7.9%, but the figure was still higher than economists had forecast. As expected, falling energy prices (specifically gas and electricity) provided a downward contribution to the headline rate, but hotels and passenger transport by air were contributions to the higher than expected figure, according to the ONS.

And finally, markets ended the week lower given concern over China’s economy. Evergrande, the heavily indebted Chinese property giant who hit headlines in in 2021, filed for bankruptcy in the US last week, a move that the company put down to debt restructuring. Real estate woes come at the same time as a slump in China retail sales for July, the country slipping into deflationary territory (which we discussed last week), an increase in the unemployment rate, and an outright suspension of releasing the “youth unemployment rate”.

We’ll see you next time.

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