(Bloomberg) – The pound hit its lowest level since November 2020, when the UK was locked down by coronavirus, with three separate reports suggesting the economic recovery is running out of steam.

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S&P Global’s PMI for services and the broader economy fell to its lowest level in three months in April, while consumer confidence fell to its lowest since the 2008 recession. retail sales fell more sharply than expected in March.

The figures add to the evidence that a cost of living crisis is beginning to weigh on activity. Consumers are grappling with rising energy bills, higher taxes and the highest inflation in three decades, and that’s starting to dampen prospects for the rest of the year.

“Rising prices and the associated rise in the cost of love have often been cited as the main cause of falling demand as Covid continues to affect many businesses,” said Chris Williamson, an economics economist. chief at S&P Global.

The weak numbers triggered a sell-off in the pound, which fell more than 1% against the US dollar and the euro, and hit a 1.5-year low against the greenback at 1.2857 $.

The pound is on course to post its biggest one-day loss against the euro since December 2020, as growing signs of a slow economic recovery prompt investors to lower expectations that the Bank of England will rise rapidly interest rates.

The readings will fuel debate on how quickly policymakers should act to calm inflation, which at 7% is more than triple the target. Investors are anticipating another interest rate hike next month, bringing the key rate to 1% for the first time since the global financial crisis more than a decade ago.

BOE policy chief Catherine Mann on Thursday raised the prospect of a bigger hike in interest rates to control inflation. She also said she is focusing on the quality of the application to determine how to vote in May.

She noted that the data suggested that “consumers were looking to the future, which would translate into a period of weaker demand growth, if not downturn.”

“Mann put the spade among the pigeons yesterday by suggesting that the BOE could pick up its pace of tightening if the economy weathers the cost-of-living crisis,” ING analysts wrote in a note. “Today’s March UK retail sales release is a step up from such a result.”

What Bloomberg Economics says…

“The UK composite PMI fell more than expected in April, suggesting that momentum is slowing as high inflation hits consumer spending and dampens growth. The PMI is expected to deteriorate further in the coming months, at as pressure on the cost of living tightens, Bloomberg Economics expects GDP to contract in Q2 and the economy to edge into recession in H2.

–Ana Luis Andrade, economist. Click to REACT.

The S&P composite PMI fell to 57.6 in March, the lowest in three months and below the reading of 58.7 expected by economists. Services fell, while manufacturing output hit a two-month high. The report showed manufacturing orders stalled and the biggest increase ever for factory gate prices.

UK retail sales plunged more than expected, with the volume of goods sold in stores and online down 1.4% last month, the Office for National Statistics said. Economists expected a decline of 0.3%.

A separate GfK survey showed UK consumer confidence fell for a fifth consecutive month in April, with Britons more pessimistic about the outlook for their personal finances and the broader economy than during the depths of the financial crisis. . Bloomberg Economics said the numbers pointed to a recession.

Wages are increasingly below the rate of inflation. Households took another hit this month when energy bills and payroll taxes rose sharply. Together, the shock is expected to deal the biggest blow to living standards in at least six decades.

The drop in retail sales was led by sales of food, clothing and footwear, and automotive fuel. Record petrol and diesel prices, pushed up by war in Ukraine, have led people to take fewer non-essential journeys.

Online sales also fell sharply to 26% of total sales, the lowest proportion since February 2020, as people reduced their discretionary purchases.

The impact was partially offset by an increase in sales of household goods, thanks to sales of DIY and second-hand goods, itself a possible sign of savings from the British.

Consumers also face the prospect of higher mortgage costs as the Bank of England raises interest rates in a bid to tame inflation.

A separate ONS survey found that 87% of adults said their cost of living had risen in the past month, up from 83%. Some 88% said the reason was an increase in food prices.

The outlook for retail sales and the economy in general will depend on the willingness of households to use the savings accumulated during the pandemic to cushion the blow.

This is not an option for the poorest families, who will be forced to borrow to maintain their standard of living or buy fewer goods and services. Economists in a regular Bloomberg survey put the risk of a recession in the coming year at 30%, the highest since the start of 2021.

“Retailers themselves are caught between rising operating costs, exacerbated by the situation in Ukraine, and falling customer demand,” said Helen Dickinson, chief executive of the British Retail Consortium. “Rising global commodity prices, rising energy and transport costs and a tight labor market are taking their toll.”

(Updated market reaction.)

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