• The headline retail sales, as well as the core measure, easily exceed the market consensus call
  • The numbers were boosted by Black Friday sales and they little change the cautious consumption outlook
  •  GBP positively reacts to these numbers, but the scale of appreciation is limited as investors await BoE meeting 

The last print from the UK economy scheduled for this week strongly surprised to the upside. The November retail sales numbers beat expectations by a large margin and this is a positive sign for the GBP (at least in the short term) as the British economy is heavily dependent on domestic consumption. On the other hand, one should be wary that the data was boosted by Black Friday sales, thus this effect should not be present in upcoming months. 

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The UK retail sales rebounded in November on the back of Black Friday boost. Source: Macrobond, XTB Research

The headline retail sales rose by1.6% y/y (+1.1% m/m) easily beating the market consensus calling for advance of 0.3% y/y (0.4% y/y). Moreover, in case of m/m reading the previous number was revised to 0.5% from 0.3%. The core measure that excludes auto fuel jumped to 1.5% y/y (1.2% m/m) from -0.3% y/y (0.4% m/m , the reading was revised from 0.1%). The less volatile gauge also managed to surpass the expectations (0.4% y/y /0.5% m/m). However, this data shouldn’t change much the overall cautious consumer outlook. The improvement was made due to better sales on Black Friday, thus this effect will not repeat in upcoming months. 

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 A subdued wage growth does not bode well for consumption. Source: Macrobond, XTB Research

Moreover, wages still lag behind inflation. That means a further deterioration in the real incomes of British consumers. Thus, the consumption is likely to stay limited in upcoming months and that’s why the BoE should remain cautious today. In such circumstances, political issues are to steer the GBP. There is EU summit today. European politics are going to accept the first outcomes of Brexit talks. 

GBPUSD has continued a rebound. The pair is testing the key resistance that lies in the vicinity of 1.3455 handle. The cable has been moving in the upward trend since the beginning of the year and we might spot some signs of exhaustion of bulls – buyers weren’t able to break above recent highs located at 1.3660 – so a re-test of the resistance could lead to another pullback. 

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 GBPUSD is testing the key resistance ahead of BoE interest rate decision. Source: xStation5