Inflation and Retail Sales give Pound momentum

22 May, 2014

Robin Haynes

Yesterday was an important day for the UK economy, and the Pound. Retail sales grew by 6.9% in April compared with last year, the strongest rise in 10 years, and up 1.3% between March and April, over double the expected improvement. Although a late Easter contributed to higher food sales, the underlying trend shows 14 months of growing retail sales in a row, in the strongest sign yet that the UK economy continues to show solid strength.

Inflation figures, also out yesterday, rose to 1.8%, close to the Bank of England’s 2% target rate, opening the door for potential interest rate rises in the coming months. The Bank of England released its minutes yesterday, and although all the committee members voted to keep interest rates on hold, the notes said that the “monetary policy decision was becoming more balanced”, adding that “the more gradual the intended rise in Bank Rate, the earlier it might be necessary to start tightening policy”. While there is almost certainly no interest rate rise due this year, talk of rate rises does help the Pound, as investors look for longer term returns driving up the price of sterling. The net effect for those of you sending payments abroad, is that exchange rates today factor in interest rises tomorrow – giving you more Euros, Dollars and Dirhams for your Pound.

Sterling yesterday hit its best rate against the Euro since December, and crept back up towards multi-year highs against the US Dollar.

Today we have the latest revision to UK GDP at 9.30am, another barometer for the UK economy, and the last main UK data due out this week before the bank holiday weekend.

In the USA last night the Federal Reserve also released its latest minutes, and in contrast to the Bank of England, did not give any hints as to interest rate rises which are currently 0% in the States. This has helped keep the Dollar weak overnight and preserve some very attractive exchange rates. Economic growth in the US, and the Eurozone, is currently lagging behind progress in the UK – and anyone holding Pounds and buying foreign currency is benefitting right now.