Pound’s rise curtailed by Brexit hit to economy

Brexit’s impact on the UK economy weighed on sterling traders at the end of another turbulent week for the devalued currency following the publication of disappointing retail sales, sending the pound sharply lower.

December’s seasonally adjusted sales, minus fuel, were 2 per cent lower than in November, the worst monthly decline in more than five years.

The pound had begun the day higher, but the data reversed its value by 0.6 per cent. That spoiled a week that on Tuesday had seen the currency rise by 3 per cent, and back above $1.24, following Theresa May’s Brexit speech.

“This weak read will undoubtedly be exploited by pro-EU/single market proponents as a clear sign that a ‘hard’ exit will come with a cost,” said Peter Rosenstreich, head of market strategy at online bank Swissquote. However, he added that the broader economic data had yet to support this theory.

The pound was ending the week much as it had begun the year, at about the $1.2280 level. In between, volatility has been an ever-present experience for sterling traders, driving the pound lower on Brexit uncertainty, yet pushing it higher on the UK prime minister’s clarification of the government’s negotiating strategy. Over the week, the pound was heading for an improvement of 1.9 per cent.

Further volatility is expected next week. On Tuesday, the Supreme Court passes judgment on the government’s appeal over the High Court ruling that forces it to consult parliament on triggering Article 50, the mechanism that initiates the two-year divorce proceedings.

Thursday sees the first estimates of fourth-quarter gross domestic product, with economists looking to see whether the surprise post-Brexit resilience in the economy can be maintained.

The 2017 outlook looked increasingly difficult, said Howard Archer, chief economist at IHS Global Insight. “Like a slow puncture, we suspect that the economy will gradually lose air as the year proceeds,” he said.