UK retail sales fall 0.4% in September, more than the 0.1% drop expected

UK retail sales fell 0.4% in September, compared with August. Economists had expected a fall of 0.1%. Sales had risen 0.5% the month before.

Other September figures on prices and costs point the same way. Headline inflation, measured by the consumer price index, was 3.5% a year on, against 3.4% expected and up from 3.1% previously. Core inflation was 2.8%, in line with forecasts. Producer input prices, the costs firms pay for goods and materials, rose 8.3% a year on, up from 6.1% previously and above a forecast of 7.6%.

The retail fall adds a weak consumer reading to a UK data picture that has otherwise leaned toward prices staying high. Jobs data came in tighter than forecast. Core inflation matched expectations, and input costs jumped. The retail figure complicates the case for higher interest rates built on those inflation and jobs readings, but it does not overturn that case. The Bank of England's expected path of rate rises through 2027 has been priced on pressure from the cost side of the economy, not on retail strength. The data stays domestic. It has no direct line to Federal Reserve policy or to US shares. Further weakness in consumer spending would add to the mixed signals already weighing on the gilt market, the market for UK government bonds, where yields sit at their highest in decades.