UK Retail Sales Beats Estimates to Put the BoE Under More Pressure

It is a busy Friday session on the economic calendar. UK retail sales figures drew investor interest this morning.

Following the pickup in UK core inflation in April, we expected increased sensitivity to the retail sales figures. A larger-than-expected increase in retail sales would fuel inflationary pressure and give the Bank of England more reason to take a more hawkish policy outlook.

UK retail sales increased by 0.5% in April versus a forecasted 0.3% rise. In March, retail sales declined by 1.2%. Retail sales were down 3.0% year-over-year versus a 3.9% decline in March. Economists forecast a fall of 2.8%.

According to the Office for National Statistics,

• Non-food store sales volumes increased by 1.0%, partially reversing a 1.8% decline in March, with food store sales up 0.7%.
• Automotive fuel sales slid by 2.2% despite declining fuel prices. In March, sales increased by 0.1%. Industrial action may have contributed to the March and April numbers.
• In the three months to April 2023, retail sales rose by 0.8%, the highest rate since August 2021.

GBP to USD Reaction to UK Retail Sales

Ahead of the UK retail sales figures, the GBP/USD fell to an early low of $1.23113 before rising to a pre-stat high of $1.23429.

However, in response to the numbers, the GBP/USD rose to a post-stat high of $1.23437 before falling to a low of $1.23327.

This morning, the GBP/USD was up 0.11% to $1.23356.

Next Up

Following today’s numbers, investors should also consider central bank chatter and the reaction to inflation and retail sales numbers. However, with no Monetary Policy Committee members on the calendar to speak today, commentary with the media would move the dial.

On Thursday, Monetary Policy Committee member Jonathan Haskel delivered a hawkish statement, saying the Bank of England would respond to evidence of persistent inflation.

Looking ahead to the US session, it is a busy day on the US economic calendar. Core durable goods orders, Core PCE Price Index, personal spending/income, and Michigan consumer sentiment numbers will be in focus.

We expect the Core PCE Price Index numbers to have the most impact. Sticky inflation would fuel bets of a 25-basis point Fed interest rate hike in June and ease expectations of an H2 interest rate cut.

Economists forecast the Core PCE Price Index to increase by 4.6% year-over-year in April versus 4.6% in March.

According to the CME FedWatch Tool, the probability of a 25-basis point Fed interest rate hike in June jumped from 36.4% to 52.2% on Thursday. Better-than-expected labor market and GDP numbers supported the shift in sentiment ahead of today’s inflation numbers. However, a US debt default would be a curveball for the Fed.