UK Retail Sales Beat Forecasts with a Warm Weather Boost

It is a busy day on the UK economic calendar. GfK Consumer Confidence and UK retail sales for May drew interest this morning. However, following the Bank of England’s surprise 50-basis point interest rate hike on Thursday, the retail sales numbers garnered more interest.

UK retail sales rose by 0.3% in May versus a 0.5% increase in April. Year-on-year, retail sales were down 2.1% versus -3.4% in April. Economists forecast retail sales to fall 0.2% in May and 2.6% year-over-year.

According to the Office for National Statistics,

• Non-store retail sales volume surged by 2.7% in May.
• Online retailers selling outdoor-related goods and summer clothing jumped on warmer weather.
• Automotive fuel store sales increased 1.7%, reversing a 1.7% decline from April.
• However, food store sales fell by 0.5%, with non-food store sales declining by 0.2%. In April, non-food store sales increased by 0.9%.

Today’s retail sales numbers are unlikely to influence the Bank of England, with the latest interest rate hike expected to curb spending.

Earlier today, the UK GfK Consumer Confidence Index increased from -27 to -24. However, risk-off sentiment overshadowed the modest pickup in confidence. Growth jitters weighed on riskier assets and the GBP to USD.

GBP to USD Reaction to UK Retail Sales

Ahead of the UK retail sales numbers, the GBP to USD rose to an early high of $1.27523 before sliding to a pre-stat low of 1.26966

However, in response to the retail sales figures, the GBP to USD slipped to a post-retail sales low of $1.27059 before rising to a high of $1.27161.

This morning, the GBP/USD was down 0.27% to $1.27132.

Next Up

UK prelim private sector PMI numbers for June will be in focus later this morning.

While the manufacturing PMI will influence, we expect the services PMI to garner more interest. However, investors should look beyond the headline numbers, with employment, new orders, and inflation being the likely focal points.

Investors should monitor Bank of England commentary. However, no Monetary Policy Committee members on the calendar to speak, leaving chatter with the media to move the dial.

Looking ahead to the US session, it is a busy day on the US economic calendar.

Prelim US private sector PMIs will also move the dial. We expect the services PMI to garner greater interest. However, investors should look beyond the headline figures, with employment, new orders, and inflation as the focal points.

Beyond the numbers, FOMC members will also need monitoring. FOMC members Bullard and Bostic are on the calendar to speak today.

After Fed Chair Powell’s two days of testimony, there was little change in Fed rate hike bets.

According to the CME FedWatch Tool, the probability of a 25-basis point July rate hike stood at 76.9% on Thursday versus 74.4% on Wednesday. The chances of the Fed lifting the Fed Funds Rate to 5.75% in September increased from 11.9% to 13.8%.