Investment Management Blog - Montague Capital

If we really want to know what’s happening in the UK retail sector, numbers from the Office of National Statistics are currently requiring far more “massaging” to make them really useful.  No wonder that the list of survey evidence used by the Monetary Policy Committee increases with nearly every formal publication we read.  Having surprised and enthused markets when it reported a 3.6% rise in retails sales for May, the ONS gave traders a serious dose of the “glooms” when it reported that sales fell a whopping 3.9% in June.  Quarter-on-quarter growth was just 0.6% and the annualised growth rate is down to 2.2%.  Unfortunately, this latest ONS number does conform more closely to what all that survey evidence (and out own activities) has been telling us for some time: consumption is on the slide.  But unfortunately too for those who seize upon this one statistic as “proof” that interest rates “must” be cut, the ONS data also suggests that retailers are trying to pass on price increases even as final demand falls.  The MPC just won’t want to send a message that this little scam will be easier to pull off in the coming months.  Indeed, no less a body than the National Institute for Economic Research, when forecasting that GDP growth will fall from 1.8% this year to 1.4% next year and only rise to 1.9% in 2010, predicted that inflation will not fall below 3% until CY09Q3 and not reach the 2% target until 2%.  If the MPC wants to show its determination in the fight against inflation says the NIESR, then it should raise rates.  For market-makers yesterday it was quite enough to know that sales are failing to slash the prices of the most exposed retailers – M&S -3.8%, DSG -8.2%.