UK Retail Sales Rise Amid BoE Rate Cut Bets, GBP Ignores Data on Tariff Jitters

UK Retail Sales Rise, Testing BoE Rate Cut Bets

UK retail sales data released Friday, April 25, failed to challenge expectations of a May Bank of England rate cut amid growing economic uncertainty tied to tariffs.

Retail sales rose 0.4% month-on-month in March after increasing 0.7% in February. Economists expected a 0.4% drop in sales. Year-on-year, retail sales rose 2.6%, up from 2.2% in February, testing the case for a rate cut.

According to the Office for National Statistics,

• Clothing and outdoor retailers attributed a 3.7% surge in sales to good weather.
• Meanwhile, food store sales dropped 1.3% in March after sliding 2.2% in February.
• Retail sales volumes rose 1.6% quarter-on-quarter in Q1 2025 and were 1.7% higher compared with Q1 2024.

The rise in retail sales came ahead of April’s employer tax hike, fueling concerns about the UK labor market.

 

BoE Rate Cut in Focus as Economic Headwinds Mount

Rising retail sales may fuel inflationary pressures, tempering bets on a more dovish Bank of England rate path. However, inflation and labor market trends continue supporting a May rate cut.

The UK’s annual inflation rate eased from 2.8% in February to 2.6% in March. At the same time, softening labor market indicators have added weight to a May rate move.

Estimated job vacancies declined by 26,000 in Q1 2025 to 781,000, dropping below pre-COVID pandemic levels for the first time since early 2021. March saw a 78,000 drop in payrolled employees, with April’s employer tax hike likely to deepen the decline.

Adding to the dovish narrative are concerns over escalating tariffs and the threat of a broader global trade war, fueling fears of a UK recession.

James Smith of the Resolution Foundation commented:

“Tariffs will hurt the economy and destroy good jobs outside London and SE, so expect policy. Big risks is this turns into a global recession.”

Bank of England Governor Andrew Bailey discussed US tariffs on Thursday, April 24, stating:

“It’s not just the relationship between the US and the UK, it’s the relationship between the US, the UK and the rest of the world that matters so because the UK is such an open economy. We have to take very seriously the risk to growth. I’ve said a number of times, fragmenting the world economy will be bad for growth.”

GBP/USD Reacts to the Retail Sales Report

The pound showed a muted response to the retail sales data. Ahead of the UK retail sales data release, the GBP/USD briefly climbed to a pre-report high of $1.33407 before dropping to a low of $1.32731.

Following the UK retail sales data release, the GBP/USD rose to a high of $1.32828 before sliding to a low of $1.32740.

On Friday, April 25, the GBP/USD was down 0.45% to $1.32781, reflecting the market’s sensitivity to inflation, labor market trends, tariffs, and their implications for the BoE.

Looking Ahead

Markets now turn to the Bank of England’s monetary policy decision on May 8. Until then, tariff developments will remain a key driver of GBP/USD price action.

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