The British Pound climbed to a two-month high against the US Dollar after UK retail sales smashed forecasts and the government posted a rare financial surplus in January.
Retail sales surged 1.7% month-on-month, well above the expected 0.3% rise, recovering from December’s -0.6% slump. The unexpected strength prompted markets to pull back expectations of a Bank of England rate cut in March, pushing the Pound-to-Dollar exchange rate up to 1.2678.
However, beneath the headline numbers, the picture is less rosy. Charlie Huggins of Wealth Club notes that much of the rebound came from food sales, while non-food retailers saw a 1.3% drop, with clothing sales particularly weak. “Hardly a sign that consumers are feeling flush,” he said.
The shift towards higher food sales could spell trouble for hospitality businesses. “More people eating at home is especially bad news for restaurants, pubs, and bars,” Huggins warns, highlighting the sector’s struggles as costs rise in April.
With inflation unexpectedly rising to 3.0% in January and forecasts suggesting it could breach 4.0%, the Bank of England faces a challenge. Markets now anticipate just two rate cuts this year, wary that easing too soon could stoke inflation further.
For now, the Pound has momentum—but whether it can hold these gains depends on what comes next.
