GBP/USD: British Pound Stabilizes as Retail Sales Edge Up

1 day ago

1 minute read

2024.12.20 07:46

The has steadied on Friday, after sliding 1.6% in the past two days. In the European session, the pair is trading at 1.2510, down 0.10% on the day at the time of writing.

Retail Sales Point to Weak Christmas Spending

UK posted a small gain of 0.2% m/m in November. This was a rebound from the 0.7% decline in October but missed the market estimate of 0.5%. Retail sales growth was hampered by weak clothing sales, which fell to their lowest volume since January 2022, as well as the wet weather. Annually, retail sales rose 0.5%, following a downwardly revised 2% gain in October and below the market estimate of 0.8%.

The weak retail sales report indicate that consumers are being cautious during the key Christmas shopping period, which is dampening economic activity. The ‘tax and spend’ Autumn budget hasn’t improved consumer confidence, as consumers remain squeezed by high prices and elevated interest rates.

UK rose to 2.6% y/y in November from 2.3% a month earlier. This was an eight-month high and has raised concerns that the economy will enter a “stagflation” phase in the new year, which is marked by low growth and high inflation. The economy has contracted for two straight months and the Bank of England is projecting that inflation will keep rising and moved closer to 3% in 2025.

The BoE maintained the cash rate at 4.75% on Thursday, as expected. The BoE monetary policy summary said that policy would need to remain restrictive until the upside risk to inflation had eased and that the central bank would take a “gradual” approach to easing policy. This could mean a cut at the next meeting in February, but that would be contingent on inflation moving lower, closer towards to BoE 2% inflation target. GBP/USD-4-Hour Chart