The British pound gained ground Wednesday, on a surprisingly upbeat August retail sales report. The official retail sale data calculated by the Office for National Statistics (ONS), showed sales volumes were 1% higher in August from July and 2.4% stronger compared with a year earlier.
That’s the fastest monthly increase since April and comes despite rising price inflation and low earnings growth. The unexpected increase in August UK retail sales boosted the British pound, as it increases the likelihood the Bank of England (BOE) will raise interest rates before the end of 2017.
Indeed, after previously warning the markets that a rate rise was on the way then failing to deliver, this latest run of economic data could be enough for the Bank to make its first move for a decade, when it next meets in November.
The minutes from the BOE’s September Monetary Policy Committee (MPC) meeting were more hawkish than expected. Combined with high inflation and signs of a healthy economy, right now, it's likely the November meeting will result in a rate hike from the current, ultra-low level of 0.25%.
Sterling gained ground on the upbeat retail sales data, hitting a session high of $1.36 against the dollar and EUR1.13 against the euro, in the wake of the release.
The data showed that despite the increase in prices, sales of non-essential, non-food goods boosted sales strongly during August. Sales of clothing and footwear gained momentum, while department store sales were healthy, too, the ONS said.
Online sales were also positive during August, although sales of fuel were lower than a month earlier.
According to the British Retail Association (BRC), the increase in apparel sales was linked to the early onset of colder weather.
“August’s bout of Autumnal weather put a spring in the step of seasonal purchases as shoppers invested in winter wardrobes and furnishing home interiors,” said Rachel Lund, Head of Retail Insight & Analytics at the BRC.