UK retail sales slide, Pound edges higher

The British pound has gained ground for a second straight day. In the European session, GBP/USD is trading at 1.3496, up 0.22% on the day.

UK retail sales decline 2.7%

UK retail sales took a tumble in May, falling 2.7% m/m. This followed an upwardly revised 1.3% increase in April and was much worse than the market estimate of -0.5%. This marked the steepest decline since December 2023 and was driven by a sharp drop in food store sales. Consumers are being squeezed by inflation and are pessimistic about economic conditions – Gfk consumer confidence for June rose slightly to -18 from -20.

Annually, retail sales dropped 1.3%, following a 5.0% gain in April and missing the market estimate of 1.7%. This was the weakest reading since April 2024.

The dismal retail sales report reflects the volatile economic landscape and there may not be a light at the end of the tunnel for some time. The Israel-Iran war could lead to oil prices continuing to rise and the uncertainty over US tariffs will only add to the worries of the UK consumer.

Are BoE’s hands tied due to high inflation?

The Bank of England held rates on Thursday but the weak retail sales report will add pressure on the central bank to lower rates in the summer. The markets expect one or two rate cuts in 2025, but the main impediment to a rate cut is stubbornly high inflation.

Inflation ticked lower to 3.4% y/y in May from 3.5% a month earlier. The core rate dropped to 3.5% from 3.8% but these numbers are still too high, well above the BoE’s target of 2%. Without signs that inflation is easing, it will be difficult for the BoE to justify a rate cut.

• GBP/USD is testing resistance at 1.3498. Above, there is resistance at 1.3527
• 1.3440 and 1.3411 are providing support

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A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities.

His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet.

Based in Israel, Kenny has been a MarketPulse contributor since 2012.