Shopping surge lifts UK rate hike bets
london — British retail sales unexpectedly surged in August, boosting chances the Bank of England will raise interest rates for the first time in a decade at its next meeting.
More downbeat news, however, came from a BoE survey which showed no sign that wages were likely to grow much more quickly, tempering a jump in sterling.
The Organisation for Economic Cooperation and Development, meanwhile, said uncertainty about Brexit meant Britain next year will suffer its slowest growth since the financial crisis.
The contrasting signals underscored the challenge for the BoE which last week surprised investors by saying it was likely to raise rates in the coming months if the economy and inflation pressures strengthen as expected.
That change of gear by the BoE came despite the uncertainty about Britain’s withdrawal from the European Union and mixed messages about the strength of the economy.
Wednesday’s official data showed a sharp pick-up in monthly sales growth in August, despite inflation pressures that have previously squeezed spending.
Retail sales volumes rose one per cent month-on-month, their fastest since April, to give an annual growth of 2.4 per cent, both well above the highest forecasts in a Reuters poll. More Britons holidaying at home and more foreign visitors, reflecting the weaker pound since the Brexit vote, could be behind some of the rise, economists said. Shoppers spent heavily on non-essentials, despite rising prices, with strong demand for watches and jewellery. “These latest figures will give further encouragement to the Bank of England to follow up their recent statements on the need to raise interest rates,” Andrew Sentance, a former BoE policymaker who now advises accountants PwC, said.
HSBC said market pricing for a quarter-point rate rise on November 2, after the BoE’s next meeting, rose to 65 per cent. —
Sterling gained almost a cent against the US dollar after the data, before later giving back most of its gains.
British retail data is frequently volatile on a monthly basis and a separate survey released by the BoE on Wednesday offered a more downbeat picture. Construction and consumer-facing industries were suffering and there were mixed signals on investment, although factory exports and business-to-business services were strong.
Pay rises mostly remained at two to three per cent, below inflation but there were some signs that the worst of the impact on prices of last year’s fall in the pound should start to ease.
The loss of disposable income this year caused the weakest first quarter for retail sales since 2010. But companies have reported little slowdown in spending so far.
Kingfisher, Britain’s biggest home-improvements retailer, said sales of expensive power tools and new kitchens had not changed, though it was cautious about the outlook. —