Pound Poised for Strongest Weekly Gain Against Dollar Since August

Economic Indicators Boost Sterling

By Sophie Kiderlin

Retail Sales and Business Activity

LONDON, 23 Jan (Reuters) - Sterling rose on Friday and was set for its best week against the dollar since August, after stronger-than-expected UK retail sales and business activity figures ended a week of mixed economic data.

Bank of England's Rate Outlook

The British pound was last 0.2% higher at $1.3525 and set for its biggest weekly jump since August with a rise of just over 1%.

Market Reactions and Predictions

The euro was down 0.36% at 86.73 pence.

UK retail sales rose 0.4% in December, compared to an expected 0.1% decline. 

While the data was widely received as a positive signal for the UK economy, Jonas Goltermann, deputy chief markets economist at Capital Economics, noted that retail sales figures can be unstable. 

"Retail sales are a very volatile series, so you get these big, big, big, big positive surprises, very positive or negative," he said. 

The latest S&P Global UK Composite Purchasing Managers' Index meanwhile rose to 53.9, also above forecasts, to a 21-month high.

British businesses reported the fastest upturn since April 2024. Employment in the services sector, however, fell at a faster rate and inflation pressures increased. 

"The Flash PMI leaping in January gives a further signal that GDP growth is likely to pick up in Q1, as the economy continues to recover from months of pre-Budget anxiety," Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, said in a note.

Friday's data, alongside reports earlier in the week that showed the labour market weakened and inflation accelerated, has put the outlook for interest rate decisions by the Bank of England back into focus.

The BOE is expected to hold rates steady when it next meets in February. Markets fully price in a quarter-point rate cut by June.

(Reporting by Sophie Kiderlin, editing by Dhara Ranasinghe and Barbara Lewis)