November retail sales for the UK were pessimistic according to the most recent Confederation of British Industry report.  Survey findings fell another 8 points to a reading of -19, far lower than market analysts’ estimates of a -12 print.  The report already confirms what is happening in the UK economy, and it’s not good when it comes to the British pound.

Taking a quick look at some of the subcomponent readings, the consumer retail sector picture remains gloomy.  Sales volume as a whole suffered in the month, plunging to a -39 reading.  Volume hasn’t been this bad since the middle of 2009.  In addition, employment readings fell across the board, in line with the rather lackluster employment figures as of late.  Although retailers did see a potential easing of the decline, for the most part, results like these are expected to continue in the short term.  And, if things are going in the same direction, the sector can expect continued weakness for the next several months.  Following a -44 print back in March 2009, the survey rebounded only slightly off depressed levels before returning to prolonged weakness.  It wasn’t until October when the gauge picked up back up ahead of the holiday season.

A reflection of the overall state of the UK economy, the recent CBI survey is likely to dampen consumer confidence further, which has plummeted to a record low.  Earlier in the month, consumer confidence figures published by the Nationwide Building Society that showed the lowest confidence readings since the survey began back in 2004.

The combination of the two reports will force Bank of England members, as well as the general market, to consider further monetary easing in the coming months for the UK – a rising possibility according to money market forecasts.  Without any impetus to spend or contribute to the overall economy, consumers will remain focused on general necessities boosting cash coffers.

This will likely weigh on the British pound as further monetary easing underlines two major themes.  First, that the central bank may be running out of policy tools to spark any type of recovery in what is now a deepening UK recession.  And second, further debasing of the UK currency is likely amid an expansion of asset purchases or outright interest rate reductions.

With the British pound ready for a bout of weakness, the GBP/NZD may be the best pair to reflect this theme.  Compared to the UK, New Zealand’s economy is in a slightly better state – being an exporting Pacific country.  The slightly better economic conditions and widening interest rate spread between both countries will add to support for a higher Kiwi valuation against the British pound in the short term – reversing a 5-month high  for the pair hit last week.  Currently at 2.0574, the pair still has room to decline to initial technical support at 2.0458 – with a break lower compounding the declining trend.