UK Retail Sales Surge in February to Test the BoE on Inflation

It was a relatively busy morning on the UK economic calendar. UK retail sales figures for February drew interest this morning.

Retail sales jumped by 1.2% in February versus a forecasted 0.2% increase. In January, retail sales increased by 0.9%.

According to the Office for National Statistics,

• Non-food store sales volume surged by 2.4%, attributed to sales in discount department stores.
• Food store sales volumes rose by 0.9%. There was reported evidence of a decline in spending in restaurants and on takeaways because of cost-of-living pressures.
• Non-store retailing sales volume rose by just 0.2%. In January, non-store retailing sales volume jumped by 2.9%.
• Automotive fuel sales volume declined by 1.1%, reversing a 1.1% increase in January caused by rail strikes.

Core retail sales increased by 1.5% versus 0.9% in January. Year-over-year, core retail sales fell by 3.3%, with retail sales down by 3.5%. Economists forecast core retail sales to fall by 4.7% year-over-year and retail sales to decline by 4.7%.

Following Thursday’s Bank of England interest rate hike, the economic indicators will give investors an idea of what to expect from the BoE in the months ahead. The Bank warned of the need for further tightening should inflationary pressures persist.

The strong retail sales figures will keep the BoE under pressure.

GBP/USD Reaction to UK Retail Sales

Ahead of the retail sales figures, the GBP/USD rose to an early high of $1.22925 before falling to a low of $1.22618.

However, in response to the retail sales figures, the GBP/USD rose from a post-stat low of $1.22679 to a high of $1.22791.

This morning, the GBP/USD was down 0.07% to $1.22773.

Up Next

Prelim UK private sector PMI numbers for March will be in focus later this morning. We expect the Services PMI to have more impact on the Pound.

However, investors should consider the sub-components including wage growth and inflation, employment, and new orders.

Bank of England commentary will also need consideration today, with Monetary Policy Committee member Catherine Mann speaking. Comments on inflation, the economic outlook, and monetary policy will draw plenty of interest.

Looking ahead to the US session, it is a busy day on the US economic calendar. US private sector PMIs and core durable goods orders will draw interest. However, we expect the prelim Services PMI to have more impact on market risk sentiment and the GBP/USD.

Following the Wednesday rate hike, FOMC member James Bullard will also move the dial. Investors will want confirmation of a pause on rate hikes to ease pressure on the banking sector and fears of a more pronounced credit crunch.