In the wake of a downturn in July 2023 retail sales, some market experts believe this decline might have a silver lining for mortgage borrowers in the UK.
Retail sales volumes dropped by 1.2% in July, following a modest rise of 0.6% in June (revised down from a 0.7% increase).
John Choong, an equity and markets analyst at InvestingReviews.co.uk, provided insight into the scenario. He said: “Despite the disappointing retail sales data last Friday that cast a shadow over sentiments about the UK economy, this bad news might ironically turn out to be a boon for the base rate.”
Earlier in the week, data had shown strong wage growth and persistent core inflation, which led the market to forecast further interest rate rises. However, the decline in spending on non-food items may act as a counterbalance, potentially leading to subdued inflation. Choong added: “This could result in a lower terminal rate from the Bank of England, benefitting mortgage borrowers.”
However, caution is the watchword. Choong emphasised that a single data point might not substantially influence the Bank of England’s decision-making regarding interest rate hikes, particularly given that July’s data was heavily influenced by adverse weather conditions.
“While the recent sales data might be viewed positively by the markets, the forthcoming inflation data will be instrumental for the Monetary Policy Committee to consider any policy changes,” Choong concluded.
