18 May 2006, 14:11  Pound gets lift from strong UK retail sales numbers

The pound got a boost after key retail sales numbers showed that consumer spending in the country picked up in April -- a factor which will advance expectations of a Bank of England rate hike before year end. In data just out, the office for National Statistics revealed that retail sales rose by 0.6 pct on a seasonally-adjusted basis in April from March, for a 3.0 pct year-on-year gain. The monthly gain was in line with expectations but the annual increase beat forecasts of a 2.7 pct increase. Additionally, the statistics office also revised up data for March. Monthly retail sales were up 0.9 pct against the previous estimate of 0.7 pct while the annual rise is now 2.8 pct against the previous 2.6 pct. "The good numbers for April and the upward revision for March are encouraging and a small step in the direction of higher interest rates," said Mark Miller at HBOS. However, he warned against reading too much into the data as some questions about the outlook for consumer spending remain unanswered. For one, wage growth has been modest and the overall labour market appears to be weakening, he added. The pound was already well underpinned ahad of the news. News yesterday that a new hawk has emerged on the rate setting Monetary Policy Committee helped bolster the pound. The April vote resulted in a 3-way split with one vote for a hike and one for a cut. The vote for a reduction was no surprise, coming from Stephen Nickell in his final vote. Significantly, David Walton opted for a hike and with Nickell's departure from the MPC at the end of the month, the committee will be left with a mildly hawkish tone.

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