UK Retail Sales contract moderately 0.4% MoM in February vs. 0.8% estimates

Haresh Menghani FXStreet

The United Kingdom (UK) Retail Sales data, a key consumer spending measure, declines by 0.4% month-over-month (MoM) in February, lower than 0.8% estimates, after rising 2% in January, revised higher from 1.8%, according to the latest data published by the Office for National Statistics (ONS) on Friday.

On an annualized basis, the consumer spending measure grew at a faster pace of 2.5% against estimates of 2.1%, but the pace of growth was slower than the previous reading of 4.8%, revised higher from 4.5%.

UK Retail Sales ex-Fuel, have also contracted by 0.4% MoM against expectations of a 0.8% decline, after a 2.2% growth in January, revised higher from 2%. Year-on-Year Retail Sales ex-Fuel arrives at 3.4%, lower than the prior release of 5.9%, revised higher from 5.5%.

Market reaction

The immediate reaction of the Pound Sterling (GBP) after the data release has come on the downside. As of writing, GBP/USD trades almost flat around 1.3330.

(This section below was published at 05:28 GMT as a preview of the UK Retail Sales data for February.)

UK Retail Sales Overview

The UK Office for National Statistics will publish the monthly Retail Sales figures later this Friday, at 07:00 GMT. The report is expected to show that sales at the retail level declined sharply by 0.8% in February, compared to the 1.8% rise recorded in the previous month.

On an annualized basis, Retail Sales are forecasted to have increased by 2.1% during the reported month, down from 4.5% in January. Meanwhile, core Retail Sales – excluding fuel – are expected to come in at -0.8% MoM.

How could the UK Retail Sales affect GBP/USD?

Ahead of the key consumer spending data, the GBP/USD pair gains some positive traction and, for now, seems to have snapped a three-day losing streak amid a modest US Dollar (USD) downtick. Surprisingly positive data would reinforce the Bank of England's (BoE) hawkish outlook and provide an additional boost to the British Pound (GBP).

Conversely, a disappointing report could weigh on GBP. Adding to this, rising bets for an interest rate hike by the US Federal Reserve (Fed) should act as a tailwind for the USD and contribute to capping the GBP/USD pair.

That said, the immediate market reaction to a meaningful divergence from the anticipated Retail Sales figures is more likely to be limited as the market focus remains glued to developments surrounding ongoing conflicts in the Middle East.

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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