Sharp drop in British retail sales raises fears over Irish shops and pubs

The plunge of 1.6% in British retail sales in August from July was much larger than expected.

A huge drop in British retail sales has spurred warnings that the cost-of-living crisis will likely mean that spending in Irish shops, cafés, and pubs is also set to take a large hit in the coming months. 

The plunge of 1.6% in British retail sales in August from July was much larger than expected and was seen by economists as a sign that Britain was hurtling towards a recession. Sterling slumped to $1.351, its lowest value against the dollar since 1985, and fell to 87.4 pence against the euro, the lowest for over a year and a half. 

It was the latest bad news for the British economy, which faces slower economic growth and more persistent inflation than any other major economy next year, according to IMF forecasts. "The grinding backdrop of everything that's going on is weighing on sterling, with the UK running these massive external deficits and the risks around the new prime minister's policies adding to that," said John Hardy, head of foreign exchange strategy at Saxobank. 

Pressures mounting

Irish economists warned that similar pressures are mounting for Irish retail sales in the autumn and winter months. That's because "the same drivers of UK consumer weaknesses are the same here", Mr O'Leary said, as the British figures show that "consumers are cracking under inflation pressures". 

He said Irish households and their propensity to spend are somewhat stronger than those in Britian, but he expected much of the same forces on consumer spending to apply in Ireland. 

Economist Austin Hughes said the British figures suggested there was likely to be a hit to Irish retail sales too. They may not yet know the size of their household bills, but "consumers know that something unpleasant will happen this winter", Mr Hughes said.  

Economists have said that the cost-of-living crisis is unusual because central banks around the world, including the European Central Bank, are scrambling to push up interest rates to deliberately slow demand and curtail consumer spending. 

They are seeking to stop inflation which has been created by energy price hikes from the fallout of the war in Ukraine from getting embedded in economies. The ECB only last week unveiled an outsized rate increase and has since talked up the prospects of further hefty rate rises. 

However, Mr Hughes said the way the ECB was going about its policy to curb demand was "inappropriate".