UK Retail Sales Surged 1.3% in November Testing Bets on a BoE Rate Cut

Highlights

• UK retail sales surged 1.3% in November, supported by Black Friday sales.
• In Q3, the UK economy contracted by 0.1%, tempering market reaction to the retail sales report.
• Later today, the US Core PCE Price Index and personal income/spending numbers will put the Fed in the spotlight.

UK Retail Sales

On Friday, UK retail sales and finalized Q3 GDP numbers drew investor interest. After softer-than-expected UK inflation numbers, weaker-than-expected retail sales could support an H1 2024 BoE rate cut.

However, UK retail sales surged 1.3% in November, with core retail sales also up 1.3%. Economists forecast both retail and core retail sales to increase by 0.4%.

According to the Office for National Statistics,

• Non-food store sales increased by 2.3%, supported by Black Friday sales and wider discounting. In October, non-food store sales rose by 0.2%.
• Food store sales rose by 0.8% compared with a 0.1% increase in October.
• Over the three months to November, retail sales declined by 0.8% compared with the three months to October.
• Falling fuel prices supported a pickup in automotive fuel sales. Automotive fuel sales increased by 0.6% in November after rising by 0.5% in October.

Finalized GDP numbers also needed consideration. The UK economy contracted by 0.1% in Q3 after expanding by 0.2% in Q2.

Impact on Bank of England Rate Cut Expectations

The surge in UK retail sales could support the Bank of England’s stance on interest rates. Three members of the Monetary Policy Committee voted for a 25-basis point rate hike. An upward trend in consumer spending would fuel demand-driven inflation and force the BoE to delay discussions about rate cuts.

Notably, the Office for National Statistics attributed the surge in sales volume to Black Friday sales. December figures could change the narrative.

GBP/USD Reaction to UK Retail Sales and GDP Numbers

Before the UK economic data, the GBP/USD rose to a high of $1.26918 before falling to a low of $1.26730.

However, in response to the stats, the GBP/USD slipped to a low of $1.26804 before rising to a high of $1.27133.

This morning, the GBP/USD was up 0.05% to $1.26962.

Up Next

The Core PCE Price Index and personal income/spending figures will be in focus. Sticky US inflation and better-than-expected personal income/spending numbers could impact the bets on a Q1 2024 Fed rate cut.

Economists forecast the Core PCE Price Index to increase by 3.3% year-over-year in November vs. 3.5% in October. Significantly, economists expect upward trends in personal income and spending.

FOMC member comments relating to the US economic indicators need consideration.