- Retail sales rebound in August easily beating consensuses
- OIS-implied probability of a hike in the UK this year increases
- GBPUSD could eye higher levels after a short-lived corrective move
In defiance of the largest GBP opponents UK retails sales rebounded robustly in August achieving the fastest pace in four months which could reduce some concerns as far as consumer spending is concerned. The GBP has rallied immediately as the stronger than expected figures seem to enhance the case for a rate increase as soon as this year.
Cutting to the chase, the headline reading showed a 2.4% yoy increase while the market consensus had suggested a pick-up just by 1.1% yoy. Moreover, the prior release was revised up from 1.3% yoy to 1.4% yoy. In turn, the core measure which strips out auto fuel, registered yet a more impressive bounce and came in at 2.8% yoy easily beating the forecast at 1.4% yoy. There was an upward revision in this case as well as the the Office for National Statistics raised the July’s reading from 1.5% yoy to 1.7% yoy.
Higher retail sales may indicate that the trough in terms of household outlays could have been already achieved but more evidence is needed to see a sustained upward trend in retail sales. Source: Bloomberg, XTB Research
That kind of figures may suggest that the GBP could be already out of the woods at least as far as consumer spending is concerned. We underlined importance of that part of the UK’s economy many times as it accounts for a massive contribution to GDP growth and when we take a look at the chart above one could assume that retail sales could have already bottomed out. Having said that, one needs to remember that one swallow doesn’t make a spring and we have to get more evidence that the ongoing adverse trend has been reversed. If the upward trend in retail sales persists, it could give a rise to a noticeable rebound in terms of household expenditure which was a drag on growth in the second quarter.
To sum up, if retail sales turn out to be equally strong in September, it could lead to a bounce in household expenditure which might be the solid case for the Bank of England to deliver an interest rate hike as soon as this year (as the BoE is clearly focused on inflation). Notice, OIS-implied likelihood of that a move in December picks up to 75% from 70% seen at the beginning of the week, markets are certain in 65% as for a hike in November.
Technically, the pound has gotten a boost which could enable the pair to break its past peak made in the aftermath of the speech delivered by BoE’s Vlieghe on Friday. If the pair storms higher, it could result in an increase even towards 1.3830. Either way, we have the FED still ahead which could be the conclusive event for the GBPUSD price action in the nearest future.