All is Well in the U.K. Economy?

In today’s edition of my Economic Data Roundup, I’ve decided to zoom in on the U.K. since it had plenty of top-tier releases earlier this week. Here’s a quick recap of how data on inflation, consumer spending, debt levels and economic growth turned out:

Inflation

As you’ve learned in the School of Pipsology lesson on monetary policy, maintaining price stability is the main mandate of central banks, which explains why inflation data is a pretty big deal. In particular, the BOE has been watching annual CPI figures closely since they are waiting for more consistent price pressures before considering interest rate hikes.

It’s no surprise then that the pound reacted positively to stronger than expected CPI figures for April. The headline figure climbed from 1.6% to 1.8% during the month, surpassing the consensus at 1.7%. Meanwhile, the core figure showed a 2.0% rise, higher than the estimated 1.8% increase. However, economists noted that most of these gains were spurred by seasonal factors and are not likely to change BOE rhetoric.

Consumer Spending

Retail sales also came in stronger than expected for April, as the headline figure showed a 1.3% jump in spending versus the estimated 0.4% uptick. To top it off, the previous month’s reading was revised from 0.1% to 0.5%.

Although the surge in spending was mostly caused by higher food sales during the late Easter holiday, pound bulls were rejoicing over the fact that U.K. retail sales marked its strongest annual pace of increase in ten years. Non-food sales were actually down by 0.4% for the month, but this didn’t stop the economy from keeping up its 14-month streak of positive retail sales figures.

Debt Levels

There’s no denying that market watchers are still a bit wary about U.K. debt levels, as the country had its share of budget problems a few years back. This is probably why pound traders reacted negatively when the public sector net borrowing report churned out weaker than expected results, as the government deficit rose to 9.6 billion GBP from 6.1 billion GBP. Analysts were expecting to see a decline to 3.6 billion GBP and were disappointed to find out that the U.K. government is spending much more than it makes in revenues.

Economic Growth

The latest GDP release, which is simply the second version of the initial estimate for Q1 2014, didn’t trigger much of a reaction among pound traders since there were no revisions to the 0.8% growth figure.

A closer look at the components of the report shows a few key changes though, with household spending and business investment figures revised higher. Business investment logged in a 2.7% gain, its fastest growth rate since last year, while household consumption grew by 0.8%. On the other hand, government spending and export activity were downgraded to show smaller contributions to overall growth.

All in all, it appears that the U.K. economy is doing mighty fine so far. Granted there are a few signs of weakness here and there, but those ain’t enough to erase rate hike expectations for 2015. Do you agree?