UK Retail Sales Jump by 0.7% in June to Test the BoE Inflation Fight

Highlights

• UK Retail sales figures reignited bets on a more hawkish post-summer Bank of England.
• In June, retail sales increased by 0.7% versus a 0.1% increase in May.
• Market sensitivity to the numbers was evident, with investors trying to guess the influence of the numbers on the BoE.

It was a busy start to the day on the UK economic calendar. UK retail sales were in focus this morning. After the cooler-than-expected inflation numbers, the markets were ready for another shock report.

However, retail sales jumped by 0.7% in June, with core retail sales rising by 0.8%. Year-on-year numbers were also better than forecast, which may irk the BoE doves.

Economists forecast retail and core retail sales to increase by 0.2% in June. In May, retail and core retail sales rose by a lackluster 0.1%.

According to the Office for National Statistics,

• There were increases in sales across the food, non-food, and non-store retailing sectors.
• Non-food store sales rose by 1.0%, reversing a 0.5% fall from May, with food store sales up 0.7% after falling by 0.4% in May.
• Non-store retailing sales volumes increased by a modest 0.2% after surging by 2.4% in May.
• However, automotive fuel sales bucked the trend, falling by 0.3% compared with a 1.7% rise in May.

Until now, the UK economy has remained resilient despite elevated inflation and Bank of England monetary policy moves to tame inflation. While inflationary pressures eased in June, wage growth remains elevated. The sharp rise in consumption could fuel inflationary pressures and force the Bank of England to take more aggressive steps to curb demand.

Earlier this morning, the GfK Consumer Climate numbers failed to move the dial. The GfK Consumer Climate Index fell from -24 to -30 in July, with inflation, interest rates, and economic uncertainty weighing on sentiment. However, the numbers were significant, with the decline in consumer sentiment signaling a possible pullback in spending.

Notably, the consumer confidence index saw its most marked decline since April 2022 and its first monthly fall since January. However, the survey took place before the June inflation numbers, which could ease pressure on homeowners and support a boost in confidence.

After the inflation report, the markets are betting on a peak BoE interest rate of 5.75% – 6%, well below the 7% number floated around before Wednesday.

GBP to USD Price Action

Ahead of the UK retail sales numbers, the GBP to USD fell to an early low of $1.28648 before rising to a pre-stat high of $1.28862.

However, in response to the numbers, the GBP to USD rose from a post-stat low of $1.28755 to a high of $1.29040.

This morning, the GBP to USD was up 0.21% to $1.28947.

Next Up

With retail sales numbers in focus, investors should monitor Bank of England chatter. However, no Monetary Policy Committee members are on the calendar to speak today, leaving comments to the media to influence.

It is a quiet day ahead on the US economic calendar. There are no US economic indicators to move the dial later in the day. The lack of stats will leave investors to consider the stats on the week and the likely impact on the BoE and the Fed.