Sterling Edges Up After UK Retail Sales Exceed Forecasts; Rate Hike Pressure Grows
UK Retail Sales Data and Market Reactions
Retail Sales Surpass Expectations
LONDON, Sept 18 (Reuters) - The pound rose slightly on Friday after figures showed UK retail sales unexpectedly rose in August, continuing a string of recent upbeat data that has increased pressure on the Bank of England to hike interest rates.
Retail sales volumes rose 0.5% from July, beating economists' forecasts in a Reuters poll for a 0.2% fall. Compared with August last year, overall sales volumes were up by 2.4%.
Currency Market Movements
The pound ticked very slightly higher after the figures were released and was last up 0.1% at $1.337. It was little changed against the euro, with the single currency flat at 85.91 pence.
Expert Commentary
"For now, the resilience of the economy is one more thing nudging the Bank of England closer to raising interest rates," said Paul Dales, chief UK economist at Capital Economics.
But Dales said inflation has yet to peak and that would likely slow growth later in the year.
Bank of England Policy Outlook
The BoE kept rates on hold at 3.75% on Thursday but said inflation would likely now peak above 4% early next year and warned borrowing costs might go up if the Iran war drags on.
Bank officials raised their forecast for third-quarter growth in the wake of figures earlier this week that showed output expanded at the fastest annual pace in 18 months in July.
Rate Hike Expectations
Traders in money markets were last pricing in a roughly 65% chance of a rate hike in November and anticipate around four 25-basis-point increases by the end of 2027.
Global Market Influences
Despite Friday's slight rise, the pound was set for its biggest weekly fall since June, at 1.2%, after the US Federal Reserve hiked interest rates on Wednesday and surprised markets with hawkish language that suggested more increases could be coming. Sterling fell 0.7% on Wednesday as the dollar rallied.
Energy Prices and Bond Yields
Rising energy prices due to the Iran conflict have caused markets to raise their bets on rate hikes, helping drive bond yields to multi-year or even multi-decade highs globally.
Currency Market Stability
The impact on currency markets has largely been subdued, however, as bond yields have moved similarly around the world.
(Reporting by Harry Robertson; Editing by Joe Bavier)
