• UK retail sales -0.9% in Setember (-0.3% expected)
• UK Gfk consumer confidence -30 in October (-20 expected)
• GBPUSD losing momentum near recent lows

UK consumers are reining in spending in the run-up to the festive season and the latest survey from Gfk suggests it’s not just the weather that’s driving it.

Retail sales fell 0.9% in September, far exceeding expectations of a 0.3% decline as unseasonably warm weather weighed on sales of Autumn clothing. While that’s not a new phenomenon, weather is often referenced in these reports, it also comes at a time when the cost of living pressures are being felt even though wages are now outpacing inflation.

Whether it is higher prices at the pump or supermarket, larger energy bills, or big increases in mortgages and rents, households are feeling the pressure and that’s not just being reflected in sales but surveys too.

The Gfk consumer confidence slipped back to -30 again and cost-of-living pressures were cited as a reason for that. While there is a view that decelerating inflation – which Governor Bailey indicated will fall sharply in October – could support consumer spending, I’m less convinced after such a long period of falling real wages and continued pressures from higher interest rates.

A double bottom forming?

The recovery earlier this month didn’t last long, with the price running into resistance around 1.2350, just shy of the 200/233-day simple moving average band.

GBPUSD Daily

Source – OANDA on Trading View

It’s now facing an interesting test of support as another rebound around these levels could potentially set up a double bottom following a substantial decline over the last few months.

The pair appears to be struggling to generate fresh momentum near the lows even as the dollar remains supported by higher US yields and the pound was briefly hit by the softer spending data. Another bounce may draw focus back to last weeks highs around 1.2337 which may represent the neckline of that double bottom.

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Global geopolitical tensions often play a pivotal role in shaping people’s perceptions of economic growth. Research shows concern about such issues can cause people and businesses to become more cautious about spending and investing, which can ultimately lead to economic recession.

The recent escalation of the Israel-Palestine conflict is no different. Investors around the world are worried about the repercussions of this war – particularly in light of an already bleak picture for global economic growth.

Hamas’s October 7 attack on southern Israel is the latest chapter of a cycle of violence that has been going on in this region for decades and, sadly, seems to have no end in sight. While the reasons behind these events are complex, the conflict’s potential immediate and long-term economic ramifications are easier to grasp.

After all, if the Russia-Ukraine war has taught us one thing, it’s that we should be mindful of the intricate interdependencies that shape the global economic and geopolitical landscape.

Read more: Ukraine and the financial markets: the winners and losers so far

How conflicts can affect the economy

Internal and inter-state conflicts often have a significant effect on stock market indices, exchange rates, and commodity prices – sometimes even sending prices higher in the lead-up to hostilities. The longer-term economic impact is typically more complicated to assess, however. The lasting effects of even seemingly dramatic events on investor behaviour can be hard to predict.

Conflicts in the Middle East tend to lead to spikes in oil prices – think of the OPEC oil embargo of 1973-1974, the Iranian revolution of 1978-1979, the Iran-Iraq War initiated in 1980, and the first Persian Gulf War in 1990-91. Since the region accounts for nearly a third of global oil supply, any instability can create market uncertainty based on concerns about interruptions to global oil supply.

This uncertainty is reflected in the risk premium in oil markets. This is the price paid for oil traded ahead of time in the futures markets versus the real-time price of oil. It reflects the profits that speculators expect to receive from buying and selling oil during a time of conflict, as well as the hedging needs of businesses that produce and consume oil and their concerns about supply and demand.

And so, the effect of the latest Israel-Hamas conflict on global financial markets will depend on the involvement of other major regional powers. If the conflict remains between Israel and Hamas, the effect will probably be limited and arguably exclusive to countries with direct trade exposure to Israel or Palestine.

But if the conflict spreads to major oil-producing nations in the region such as Iran, the global economy could face severe repercussions as energy costs for businesses and households could spike if supply is interrupted.

Higher energy prices would hamper central banks’ efforts to tame inflation pressures in most advanced and emerging economies. If this leads to a “higher for longer” monetary policy that keeps interest rates elevated, it would push up the cost of borrowing and refinancing by governments, companies and people.

History can offer some insights into how the impact on the global economy could unfold under these different scenarios. For instance, the 50-day war between Israel and Hamas in 2014, which killed 2,200 people, mostly civilians, had no significant effect on the global economy or financial markets.

Yet, when Israel and Hezbollah clashed in Lebanon in 2006, oil prices surged globally due to fears of a broader conflict in the Middle East.

What to expect this time

Unfortunately, there is another factor to consider at the moment. The escalation of the Israel-Palestine conflict has happened alongside the realignment of various global alliances. This slow creep of “deglobalisation” can be seen in a shift in trade policies in recent years.

Countries such as the US and UK are relocating economic activity including sourcing or manufacturing products from different countries out of concern about relying on suppliers in potentially hostile regions, as well as the impact of imports from low-wage countries on struggling local labour markets

At the moment, these shifts can also be seen in the reactions to the Hamas attack on Israel. A two-state solution) to the Israel/Palestine conflict was initially laid out by the United Nations in 1947 and reaffirmed in 1974, with almost unanimous support around the world.

But there has been some nuance in the international reactions to the attack. With most western countries quickly voicing support for Israel’s right to defend itself, while countries like China and Russia called for a ceasefire without taking a stance on Hamas.

This suggests that the issue of Israel-Palestine could tie in with the broader trend towards the new geopolitical divisions that were already starting to emerge before Hamas’s attack.

A prolonged conflict between Israel and Palestine, especially with the involvement of major regional powers, could further accelerate this global realignment and have detrimental consequences for global economic growth.

Read more: China-US tensions: how global trade began splitting into two blocs

Under these circumstances, investors are already bracing for increased financial volatility across the board – from stocks and government bonds to commodity markets. So-called safe-haven assets like gold are typically used as protection against overwhelming economic uncertainty. The price of gold has shot up following the latest escalation in the Israel-Palestine conflict.

Financial markets will continue to monitor the conflict between Israel and Hamas for signs of escalation. Anything that pushes oil prices up further will reignite fears of higher inflation.

Unfortunately, this is happening just as many countries were starting to see inflation slow again after two years of persistently high consumer prices.

Daniele Bianchi does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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The Research Brief is a short take about interesting academic work.

The big idea

Girls in India report being less interested and engaged in politics than boys and cite fewer opportunities to participate in politics, we found in a recent survey of youth across India.

Further, although political interest and engagement was higher for older boys (ages 18-22) than younger boys (ages 14-17), girls’ political interest and engagement stagnated across age groups.

I study young people’s political development, and in the fall of 2022 I collaborated on a study with Indian nonprofit Kuviraa. I am on the advisory board at Kuviraa, which aims to increase girls’ engagement in politics. We used an Instagram ad to survey over 600 youth ages 14-22 who lived in nearly 30 cities across India.

We found that just over half (51%) of boys considered themselves politically engaged compared with less than a third (29%) of girls. We also measured the survey participants’ level of political engagement based on five behaviors, including sharing political posts online, attending rallies and contacting government officials. We found that boys and girls age 17 and under had similar levels of political engagement. However, boys’ engagement became much higher than girls once they were 18 and older.

Further, boys had lower awareness than girls of the structural barriers women face in Indian politics. For example, 74% of the girls surveyed agreed that “it is more difficult in our society for women to become elected officials” compared with 54% of the boys. We found that girls’ awareness was higher with age, whereas boys followed the opposite trajectory, with lower awareness in the older age group.

We also explored possible predictors of youths’ political engagement such as public speaking skills or having a sense that they are able to affect politics. We found that the two significant factors that shaped youths’ political engagement were having parents who discuss politics with their children and parents who encourage their children to engage in politics. The effect was less for girls but still significant.

Finally, we analyzed over 430 open-ended responses to explore how participants explained gender disparities in Indian politics. In these responses, we noticed a pattern: Boys tended to attribute gender disparities in politics to individual women’s choices. “Women don’t take the initiative to stand as a candidate,” one 18-year-old boy explained. Meanwhile, girl respondents tended to emphasize structural forces at play. “It is a common mindset that women should work at home even today,” a 17-year-old girl wrote. “It’s clearly seen even in my family despite their modern mindset.”

Why it matters

Women’s political representation is important to democracy and societal progress. Studies of India’s local councils have shown that having more women political leaders leads to more policies catered to women. More women representatives also improves child health and education indicators and can lead to more lasting peace negotiations.

With India’s general elections coming up in 2024, a conversation about the importance of increasing women’s political representation is particularly timely. India’s Parliament recently passed one of the most progressive bills in any democracy to reserve a third of seats for women. Currently, Indian women vote in high numbers but make up just 14% of Parliament.

What’s next

Our findings suggest that parents simply talking to their children about politics, and encouraging them to engage, can have substantial effects on girls’ political interest and engagement. Yet more resources are needed to teach parents how to have these conversations, particularly with younger children.

It is also critical that boys understand the structural causes of gender inequities in Indian politics. That way they can be enlisted as allies in overcoming obstacles to women’s political engagement.

Sara Wilf is an Advisory Board Member at Kuviraa.

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