UK Retail Sales rose by 1.2% month-over-month in May, significantly exceeding the market consensus of 0.5% and rebounding from a decline in April, according to data from the Office for National Statistics [1][2]. Excluding fuel, core Retail Sales also increased by 1.2% after a previous contraction of 0.1% [1][2]. On an annual basis, Retail Sales grew by 3.2% in May compared to 0.1% in April, while annual core Retail Sales jumped 4.6% from 1.1% in the prior month, both surpassing expectations [2].
Despite the strong retail data, the British Pound's reaction was mixed. The EUR/GBP pair traded at 0.8670 after bouncing from session lows near 0.8660, indicating the Euro trimmed some losses but remained weaker against the Pound [1]. GBP/USD was 0.08% lower on the day at 1.3195, and the Pound was the weakest against the Japanese Yen among major currencies [2]. The initial positive impact on GBP from the retail data was offset by an unexpected rise in UK Public Sector Net Borrowing, which increased to GBP 23.29 billion in May from GBP 23.03 billion in April, contrary to expectations of a decline to GBP 18.5 billion. This raised concerns about the UK's fiscal deficit and limited the Pound's recovery [1].
In the Eurozone, German Producer Prices Index (PPI) data showed factory-gate inflation accelerated to 2.2% year-on-year in May, up from 1.7% in April but below the 2.5% expected. Monthly PPI eased to 0.3% from 1.2% [1].
The Bank of England (BoE) left interest rates unchanged at 3.75% during its Thursday meeting, with two policymakers advocating for a quarter-point hike. The BoE also lowered its inflation forecasts for the rest of the year but warned of ongoing uncertainty from the energy shock [1]. Analysts in source 2 suggest that stronger-than-expected Retail Sales could support the GBP by encouraging the BoE to maintain higher interest rates for longer [2].
Additionally, the Labour Mayor of Manchester, Andrew Burnham, won the Makerfield parliamentary seat, but the impact on the Pound was described as marginal [1].
CONCLUSION
UK Retail Sales data for May showed robust consumer spending, beating expectations and providing initial support for the British Pound. However, concerns over rising government borrowing and a mixed currency performance tempered market enthusiasm. The outlook for GBP remains cautious, with fiscal risks and central bank policy in focus.