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UK retail sales falter in ‘meagre’ October, but house prices climb – as it happened

All the day’s economic and financial news, including a worrying drop in non-food sales in the UK and the Halifax’s house price survey

This mornings’s weak retail sales report helped to deprive us of another record closing high on the FTSE 100.

The blue-chip closed down 49 points at 7513. Other European markets also dropped.

European Closing Prices:#FTSE 7513.11 -0.65%#DAX 13379.27 -0.66%#CAC 5480.64 -0.48%#MIB 22962.59 -0.18%#IBEX 10230.7 -0.83%

#FTSE closing prices#FTSE100 7,513.11 -49.17 (-0.65%)#FTSE250 20,307.11 -125.49 (-0.61%)#FTSEAIM100 5,377.07 +4.05 (+0.08%)

SSE’s hopes of combining its UK operations with nPower could fall foul of comjpetition authorities.

Neil Wilson of ETX Capital reckons these concerns could sink the deal.

Cutting the big six down to a big five would hardly help competition, which is exactly what the government wants. A merger would create the UK’s largest household energy supplier with a 24% market share, ahead of British Gas’s 22%.

The problem and arguably the rationale is that the big six are losing customers at a record pace to smaller suppliers. Smaller suppliers now account for more than 8% of market share, up from 1% just three years ago, according to Ofgem data. The big six also face a hit from price caps – consolidation has its appeal in this kind of environment – just look at the gambling industry’s raft of deals.

Npower has been on the ropes for some time, racking up losses and losing customers quickly following well documented customer service troubles and higher costs. Cost cutting has been severe but not enough to full offset worsening market conditions and reduced margins. Profits in the first half fell 114% from a year ago and it’s on course for a third consecutive annual loss. Years of problems have led to restructuring but it’s clearly not working quickly enough.

There’s big news in the British energy market this afternoon, with SSE and npower announcing plans to create a new UK energy provider.

If they succeed, it would leave Britain with just five major suppliers. That could threaten competition at a time when public anger over rising energy bills is palpable.

SSE and npower, two of the UK’s biggest energy companies, are planning to combine their household energy supply businesses in a potentially seismic shake-up of the market.

The two firms said they are in well-advanced talks to create a new independent energy supply firm. The new business would combine the 13 million customers they currently supply with electricity and gas.

Related: SSE and npower in talks to create UK's biggest energy supplier

Over in New York, the main US stock indices have hit new record highs at the start of trading.

Dow, Nasdaq, S&P 500 hit record highs shortly after opening bell. https://t.co/FzRobQH1RD pic.twitter.com/MrGzLVvrkq

The long equities rally has driven world stock markets to a new record high.

The MSCI All-Country World Index burst through the 500-point mark for the first time today.

*JAPAN'S NIKKEI 225 CLOSES AT HIGHEST SINCE JANUARY 1992

Global bonds – equity correlations have been virtually 1 over the past year (see above chart), following virtually uninterrupted linear growth, pretty much void of volatility, despite historically tight credit spreads and a growing negative-yield bonds universe. This is the type of artificial liquidity environment where asset bubbles and systemic crises are born.

As QE tapering gets underway expect a gradual pivot in market sensitivity back towards domestic fundamentals and real risk pricing. It is little surprise that central banks want to exit the current markets environment and follow a return to normal economic activity with policy normalisation, as fast as possible, without putting reflation objectives at risk.

Over in Greece finance minister Euclid Tsakalotos has reacted furiously to claims – issued by parliament’s state budget office no less – that the country faces economic collapse if its staggering debt load is not substantially reduced.

“I am surprised at the use of invalid data and ensuing public relations stunt.”

I mentioned earlier that house price shortages were keeping UK prices up….

…and bang on cue, online estate agents HouseSimple.com have confirmed that this is an issue.

“The housing market is in desperate need of a prolonged period of supply growth rather than isolated months where seller numbers rise, only to fall back the following month.

We probably won’t see numbers jump again this year, but steady levels in November and December would at least give the market a strong base going into the New Year, particularly with some heavy Brexit headwinds heading our way.

This month’s Black Friday sales will be crucial for UK retailers, especially as Amazon is gunning for them with 10 days of sales and a pop-up store in Soho.

High Fletcher, global head of consultancy and innovation at consultancy firm Salmon says retailers might profit by launching their own promotions pronto….

A strong focus on digital and innovation will be vital for consumers wanting a quick and convenient service – the figures are suggesting, after all, a shift from buying items they want to rather buying items they need.

As consumers increasingly flock online to purchase goods, retailers should be looking to start Black Friday sales sooner rather than later to boost the slump in non-food sales, perhaps by even creating their own ‘peak days’ to stave off the competition from Black Friday stalwarts such as Amazon.

Shares in several major British retailers have dropped today, following the news that sales fell in October.

Kingfisher, which operates the B&Q DIY chain, and Marks & Spencer are both among the biggest fallers on the FTSE 100 this morning.

#ABF shares taking a bit of a pasting on outlook -3.71%

In another sign that shoppers are cutting back, sales at John Lewis’s department stores fell by 3.7% last week compared to a year earlier.

Takings in the seven days to 4th November fell to £102.03m, from £105.98m in 2016.

Eurozone retail sales have beaten forecasts, in another sign that Europe’s economy is strengthening.

Eurozone retail sales jumped by 0.7% in September, according to new figures from Eurostat. On an annual basis ,sales volumes were 3.7% higher than a year ago.

Euro area #Retailtrade +0.7% in September over August, +3.7% over August 2016 https://t.co/FShaHDrjXI pic.twitter.com/BVJsSdqD9z

Euro area consumers BUY MORE STUFF. pic.twitter.com/sGvUMoqhmz

Jeremy Leaf, a north London estate agent, agrees that the shortage of UK houses are keeping prices up.

On the face of it, these figures are quite encouraging because they continue to demonstrate the market resilience that we have grown accustomed to over the past few months. However, when you look behind the numbers you realise that much of the growth is supported by continuing shortage of supply which we are also finding on the high street.

‘Looking forward there is no doubt that people will continue to trade but more nervously, particularly in the light of higher mortgage costs and pressure on real income.’

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The drop in retail sales last month shows that UK shoppers are holding onto their cash until they see a real bargain, says Hannah Maundrell, editor in chief of money.co.uk:

She explains:

“Despite retailers best efforts it’s not surprising households have tightened their purse strings in light of inflation rising and the lack of wage growth. Everyone is dubious about parting with their cash “just in case”.

“We’re coming into what is typically the busiest period of the year for retailers, however bargain blindness has hit the retail sector hard as the expectation of rock bottom prices means we’re less and less willing to part with our cash if we have to pay full price.

Discount fashion chain Primark has defied the slowdown in UK retail sales.

After a good first half, third quarter trading was strong in the lead-up to Easter, with the growth also benefiting from comparison with prior year results that were affected by poor weather and an earlier Easter holiday. Fourth quarter trading was equally strong, fully reflecting the success of our consumer offering.

This was driven by the ability of our buying, merchandising and design teams to identify and deliver key seasonal trends. The consumer response to our new autumn/winter range has been encouraging.

If Halifax are right, then house prices are rising much faster than wages (up 2.1% in the last year) and interest rates (now 0.5%).

Lucy Pendleton, Founder Director of independent estate agents James Pendleton, says the lack of supply of new homes is pushing prices up.

“We’ve since had a rate rise but what you’re seeing isn’t one last hurrah as people rush to grab the best mortgage rates. It’s that same old ball and chain around the UK property market’s neck – weak supply.

“The countdown on rates may have helped support demand but mortgage approvals were down. We know stiff competition for homes exists but to see approvals and prices diverge in such dramatic fashion is surprising.

UK house price inflation has accelerated again, according to the latest survey from Halifax.

The lender reports that house prices rose by 4.5% in the last quarter, compared to a year ago. That’s up from 4% a month ago, and the fastest annual increase since February.

Halifax marks house prices up 4.5% over the past year even if it doesn’t feel like it is. pic.twitter.com/PMYpc5MH8i

Brits may be cutting back on clothes, but they’re still finding money for essentials such as, err, posh tonic water.

The exceptional performance in the UK, the Group’s largest market, has been particularly impressive with the rate of sales growth and momentum strong across both the on and off trade.

The mixer category is now the fastest growing category across the UK soft drinks sector with Fever-Tree responsible for 97% of the value growth in retail over the last 12 months.

UK fashion retailer New Look has also reported a drop in sales over the last six months, another sign that the sector is going through a tough patch.

“Today’s results reflect another tough period of trading for the company amid a challenging retail environment on the UK high street.

Whilst we’re not anticipating a reversal in fortunes overnight, I am confident we will implement the necessary changes to get the company back on track.

Paul Martin, head of retail at KPMG, says the drop in UK retail sales in October is a “real disappointment”

“Clothing sales were particularly hard hit. After a brief uptick, fashion sales reverted back to the dreary theme we have seen for a number of months this year.

Unseasonably warm weather last month will not have helped, but this is unlikely to be the only reason the new ranges are proving unpopular.

“Overall growth online was lacklustre at best, although health and beauty products continued to stand out as a strong performer. The burning questions for retailers will be whether shoppers are holding off their purchases until Black Friday, and whether retailers can recover from this month’s poor performance to end the year on a high.

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

“It was a meagre month in October for retail sales as shopping activity slumped. With total growth at its lowest since May and below the 12-month average, retailers will have cause for concern as they prepare for the crucial run up to Christmas.

“The decline was driven by the worst performance of non-food sales since our record began in January 2011, as consumers appear to have opted for outdoor experiences and excursions during half term, over visits to the shops. The growth in food sales meanwhile, adds some colour to this otherwise anaemic picture, but these figures are very much buoyed by inflation.

“Real consumer spending power has been on a downward trend in the last year as the acceleration in inflation has caused shoppers to become ever more cautious in considering what purchases they can afford. Many now face higher borrowing costs, given the rise in interest rates, which will only serve to heap further pressure onto household finances.

Related: Retailers urge 'shoppers' budget' as figures point to squeeze

Yipper Dee doo dah……not….UK retail sales falter in October – BRC https://t.co/BHHJ8oIg8k via @fastFT

European opening call @LCGTrading $FTSE +18 points at 7580$DAX +42 points at 13510$CAC +10 points at 5517$IBEX +42 points at 10358

I have great confidence in King Salman and the Crown Prince of Saudi Arabia, they know exactly what they are doing….

….Some of those they are harshly treating have been “milking” their country for years!

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