British retail slumps amid flurry of global economic alarm

Concerns over the state of the economy in Britain and internationally continued yesterday, with separate reports painting ominous economic pictures.

The global economic slowdown has been exacerbated by the US-China trade war and increased threats of a currency war, but also by a tortuous Brexit in which leaving without a withdrawal agreement seems more possible every day.

In the UK, the Confederation of British Industry (CBI) released a survey of August retail performance on Thursday that gave the second worst gauge of retail sales volume since records began in 1983 - and the worse since 2008 - putting the score at -49, after a July score of -16.

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The survey found that 10% of retailers reported increased sales over the past year, while 58% said sales had fallen.

“Sentiment is crumbling among retailers, and unexpectedly weak sales have led to a large overhang of stocks,” said Anna Leach, the CBI's deputy chief economist. “With investment intentions for the year ahead and employment down, retailers expect a chilly few months ahead.”

Reuters quotes Howard Archer, chief economic adviser to the EY ITEM Club consultancy, who reflects on the CBI report.“The very weak August CBI survey raises the possibility that consumers are becoming more concerned and cautious as the UK’s 31 October departure date from the EU looms and expectations of a ‘no deal’ Brexit rise,” he said.

Thursday’s bleak CBI report came in the wake of buoyant performance for the pound. Following German Chancellor Angela Merkel’s positivity on finding a Brexit agreement on Wednesday, Thursday saw increased trader confidence cause sterling to rise 1% against the dollar, to register its best performance in three months.

In the US, the yield curve inverted for the third time this month yesterday.

A yield curve inversion has foreshadowed the past seven recessions of the American economy, and according to Tom di Galoma, a managing director at Seaport Global Holdings, quoted by the Financial Times, “is a precursor for a recession 12-15 months from now.”

On the same day, IHS Markit’s US manufacturing purchasing managers’ index showed that US factory output shrank for the first time since 2009. The country’s service sector also contracted.

“The data come ahead of Federal Reserve chair Jay Powell’s speech at the annual gathering of monetary policymakers in Jackson Hole, Wyoming. The central bank already cut interest rates in July for the first time since the financial crisis, but at the time, Mr Powell remarked that it was a ‘mid-cycle adjustment to policy’ rather than the start of a more aggressive cycle of monetary easing,” reports the FT. “Markets have, however, priced in additional rate cuts this year and investors will be waiting to see if he does signal further rate cuts when he delivers his remarks on Friday.”

According to MarketWatch, “the Federal Reserve’s recent interest-rate reduction in July and expectations that it will continue to cut rates, are a tacit acknowledgment that the central bank must keep interest rates low or risk a debt meltdown.”

The increased economic peril comes as the Trump administration works to dismantle the Dodd Frank Act - the regulations put in place by the Obama administration in the wake of the last financial crisis to prevent overt risk taking by banks.

On Tuesday, the Federal Deposit Insurance Corp. (FDC) board voted to loosen the Volcker rule. The rule was specifically designed to limit banks’ use of customers’ money on high-risk ventures. The move “will not only put the US economy at risk of another devastating financial crisis, but it could potentially leave taxpayers at risk of having to once again foot the bill for unnecessary and burdensome bank bailouts,” House Financial Services Chairwoman Maxine Waters, a Democrat from California, said in an email to Politico.

A further IHS Markit report has indicated bad news for Germany industry.

Speaking in Bloomberg, IHS Markit economist Phil Smith allays the worst concerns, but still acknowledges that in Germany, a technical recession - an economic contraction for two consecutive quarters - may still be on the cards:

“Germany remains a two-speed economy, with ongoing growth of services just about compensating for the sustained weakness in manufacturing,” Smith said. “Although improving slightly, the survey’s output data haven’t changed enough to dispel the threat of another slight contraction in gross domestic product in the third quarter.”

The outlook for the economic performance of the Eurozone is weak, and policymakers at the European Central Bank “are widely expected to cut interest rates deeper into negative territory at its next meeting in three weeks,” reports the Telegraph. “It could also restart its bond-buying programme before the end of the year after only stopping quantitative easing in December 2018.”