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Pound Sterling (GBP) outperformed other major currencies outside Asia Pacific during Friday’s London session. The British pound rose sharply after the Office for National Statistics (ONS) reported that retail sales rebounded as expected in July after shrinking sharply in June.
The report showed that retail sales grew by 0.5% monthly and 1.4% annually. The report showed strong sales growth at department stores and sports equipment stores, with retailers citing summer discounts and sporting events such as the European football championships as boosting sales. On the contrary, demand for automobile fuel has shrunk significantly.
Retail sales are a key measure of consumer spending. Strong consumer demand tends to fuel inflationary pressures in the economy, so the data may dampen expectations that the Bank of England (BOE) will cut interest rates again in September. The Bank of England began cutting its key lending rate in the first week of August, but the cut was a difficult decision, with the vote split 5-4.
The Bank of England’s next monetary policy meeting in September is also likely to be a difficult decision. UK services sector inflation fell sharply in July as wages growth slowed. However, the latest labor market data also showed that the unemployment rate unexpectedly fell and the economy was clearly on the path to expansion.
