Challenges for the UK – weekly update 14 January

Challenges for the UK – weekly update 14 January

Ben Seager-Scott
Published: 14 Jan 2019 Updated: 13 Jun 2022

Weak UK data

The UK continues to see weak data, with Industrial Production contracting -1.5% year on year (yoy) in November, down from -0.8% and below the marginal improvement to -0.7% that had been expected.

In particular, it was a significant slowdown in car manufacturing that dragged the broader index lower, coming the same week that Jaguar Land Rover announced 4,500 job cuts and Ford said that it would look to restructure its European operations. Car makers have been suffering from a combination of factors, most notably the slowdown in China and the move away from diesel engines.

Challenges for the UK’s high street

There were also challenges for UK high street retailing, where estimates from KPMG and the British Retail Consortium (BRC) showed December retail sales were flat on a year earlier, down from a 1.4% rise in December 2017 and the worst result since 2008. The BRC also reported that like-for-like sales fell -0.7% by value.

Whilst the exact make-up of the respondents is not disclosed, it is widely thought to have a significant tilt towards high-street retailers, which continue to suffer against the onslaught of online retail. In a previous update we highlighted the strength of the November retail sales numbers but mused as to whether this was simply a shift in spending patterns around the Christmas period (and with the Black Friday phenomenon establishing itself on this side of the Atlantic). Whilst this report is primarily a story around the decline of the high street, it does make this week’s UK Retail Sales reading that much more interesting.

Growing retail sales in the Eurozone

Speaking of retail, it was a much better environment in the Eurozone, where November Retail Sales grew at 1.1% yoy for November, ahead of forecasts for a dip to 0.4% but still a slowdown from the 1.7% recorded previously.

Despite this positive news, sentiment indicators suggested businesses continued to be cautious, with the Business Climate Indicator falling from 1.09 to 0.82 (1.00 was expected) and the Economic Confidence reading slipping from 109.5 to 107.3 (108.2 was expected).

Last week’s other events

  • US CPI inflation fell by 0.3% to 1.9% yoy as expected whilst the core measure, which strips out the volatile food and energy elements, was unchanged at 2.2% as expected. ISM Non-Manufacturing fell more than expected, from 60.7 to 57.6 (58.5 was forecast), though the absolute level remains robust and there are few direct signs of impact from the US-China trade tensions. The latest Federal Reserve (Fed) minutes added relatively little to the discourse, as much of the more patient and less hawkish sentiment had already been articulated in recent speeches by Federal Open Market Committee members.
  • Japan’s Services PMI fell from 52.3 to 51.0, pulling the Composite reading from 52.4 to 52.0, whilst Consumer Confidence continued to slide, falling from 42.9 to 42.7. Falling sentiment was also registered in the Eco Watchers survey, with the outlook reading falling from 52.2 to 48.5 (51.4 was expected). There was some positive news, though, as Labor Cash Earnings remained robust and surprised with a rise to 2.0% yoy, from 1.5% previously which was comfortably ahead of the slowdown to 1.2% that had been expected.

The markets

Risk assets continued to regain their poise last week, though core sovereign bonds were only marginally softer.

One-month performance of major asset classes in sterling terms


Equity markets continued their rally last week, with Japan’s TOPIX index leading the pack, up 4.0% for the week. In the US, the S&P 500 advanced 2.6% whilst the UK and Europe both gained 1.7% (as measured by MSCI UK and Europe ex-UK indices respectively). The MSCI Emerging Markets index also had a strong gain, up 3.5%.


Movements in the core sovereign bond markets were slightly softer last week. 10-year US Treasury yields rose 3 basis points (bps) to close at 2.70%. The equivalent UK gilt yields were 1 bp higher by the end of the week to close at 1.29% whilst 10-year German bund yields were 3 bps higher to 0.24%.


Brent crude oil rose back through the US$60 mark, ending the week at US$60.48 per barrel. Gold was marginally stronger, last seen at US$1,290 per ounce and copper also firmed slightly, finishing at US$2.66 per lb.


Sterling regained some strength last week, gaining almost 1% against the US dollar. Sterling closed on Friday at US$1.28, €1.12 and ¥139.

The week ahead

It’s another relatively quiet week for economic data releases. On Monday morning China releases its latest trading data whilst in the afternoon Eurozone Industrial Production for November is reported (a -2.1% contraction is expected, from 1.2% growth in October). UK inflation on Wednesday is forecast to have slipped from 2.3% to 2.1% yoy, whilst on Wednesday afternoon US Retail Sales were due – but these are one of the releases impacted by the US government shutdown. Given the focus on the retail sector, the UK Retail Sales release on Friday could provide a focus, and forecasts are looking for another reading of 3.6% yoy growth in December.

Of greater interest, of course, will be the political developments – most notably here in the UK with the ‘meaningful vote’ due on the Withdrawal Bill, coming amid a flurry of government defeats recently and a great deal of uncertainty. Rather than trying to second-guess the outcome and the possible paths, we will wait to see what happens and report back accordingly.

This week also sees earnings season kick off in the US, which should give markets some fundamentals to focus on. The daily breakdown is as follows:

Monday: After the Chinese trade data released early in the morning, we also have Eurozone Industrial Production (-1.5% from 0.2% yoy expected) due out, though there is little else of note scheduled.

Tuesday: Early in the morning, UK time, Japan reports on bankruptcy rates and Machine Tool Orders. Later in the morning the Eurozone reports the latest Trade Balance and then in the afternoon the US updates the Empire Manufacturing index (11.3 from 10.9 expected). Late in the evening Japan releases Core Machine Orders. The vote on the Withdrawal Bill, if it goes ahead, is expected in the evening.

Wednesday: UK CPI inflation is the main event for the day. The headline reading is covered above, whilst Core CPI is expected to remain unchanged at 1.8%. US Retail data in the afternoon would have been noteworthy but is delayed due to the US government shutdown.

Thursday: The Bank of England reports the latest credit conditions and bank liability survey results, followed by Eurozone construction output later in the morning. In the afternoon, the US reports the Philadelphia Fed’s Business Outlook and then late in the evening Japanese CPI inflation is out (0.3% from 0.8% yoy expected).

Friday: The main interest will likely be UK Retail Sales data, the headline estimate covered above – Retail Sales excluding Autos and Fuel are expected to show no change at 3.8% growth. In the afternoon, US industrial Production is forecast at 0.2% month on month (mom) from 0.6%, and the latest University of Michigan sentiment surveys are released.


This article was previously published on Tilney prior to the launch of Evelyn Partners.