GBP Fundamental Forecast: Festive Cheer Ends and UK PM Seeks End to Strikes

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Pound Sterling (GBP) Fundamental Forecast: Bearish

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After the Festive Season Companies are bracing for Lower Sales, Profits

Next week we look forward to trading updates from retailers Sainsbury’s JD Sports, Tesco, Marks and Spencers and Asos with updates indicating that holiday shopping was not as bad as once feared particularly in the middle of railway and post office strikes.

With this being the first Christmas free from Covid restrictions, food and clothing retailers have performed well considering the cost-of-living squeeze and inflation well into double digits. Grocery sales according to till data from market researcher Kantar revealed that Tesco and Sainsbury’s rose 6% and 6.2% in the Christmas quarter. However, reported volumes were lower meaning investors will be looking to the trading updates for clarity on profitability.

Current guidance out of UK retailer Next, which is often viewed as a bellwether for the UK consumer economy anticipates lower sales and profits throughout 2023 when the Bank of England is expected to reach restrictive territory and hold policy rates until inflation comes down.

Challenging UK Business Environment Could see an 85% Reduction in Energy Relief

The British government will announce to parliament next week how it plans to cut unaffordable energy support for businesses by around 85% in the next financial year. Jeremy Hunt’s office communicated the need for long-term affordability and value for money for the taxpayer. This, at a time when gas prices have fallen drastically but remain higher than in early 2021.

Prime Minister Rishi Sunak has issued an invite to unhappy trade union leaders to ‘constructive’ talks as thousands of workers from rail to healthcare continue strike action over demands for better pay. Their demands come after the UK entered into double digit inflation and unlike the EU is yet to return from it.

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Risk Events for the Week Ahead

UK specific events are rather light but we will get insight into the state of the UK economy with November GDP data. However, the US has arguable one of the most important data prints of 2023 in the first few days of trading with CPI on Thursday. We have already witnessed multiple lower inflation prints which contrasts the expanding labor market. Lower inflation suggests that interest rates need not go too much higher, while greater employment data suggests that there is more spending going on in the economy, capable of driving prices higher. Lastly, on Friday the preliminary Michigan consumer sentiment figures continue to trend in a positive direction as global oil and gas prices ease and the job market thrives.

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