U.K. Consumer Spending – Saved By The Small Retailers!

Ding! Ding! Ding! Ding! After printing data misses, the U.K. finally scored a hit with the retail sales release!

The U.K.’s headline retail sales figure showed a 2.6% gain from November to December, the strongest December reading since the records began in 1996. This translated to an annualized gain of 5.3%, the fastest increase in more than nine years. Talk about record-breaking!

Impact on the pound

Not surprisingly, the pound bulls were all over the pip streets at the report’s release. GBP/USD jumped by 120 pips in the first hour of the release, GBP/JPY rocketed by 130 pips, and EUR/GBP fell by 60 pips. Hope you caught some of the action like Cyclopip did!

GBPUSD

Impact on the economy and future BOE policies

The report was a welcome surprise for three main reasons. First, analysts had only been expecting a 0.3% increase. Second, an earlier report from the British Retail Consortium (BRC), which mainly covers big retailers, actually showed a decline in retail sales from November to December.

Last but not the least; market players were already expecting a weak Q4 2013 for the retail industry. After all, October’s retail numbers had declined by 0.9% and only grown by 0.3% in November. Not only that, but industrial production and construction numbers both fell in December and could have hampered consumer spending.

Despite all that, the report’s main draw for the bulls is its possible impact on the Bank of England’s (BOE) monetary policies. Investors believe that the strong retail sales reading keeps the prospect of the central bank raising its interest rates sooner than 2016 alive.

Of course, the BOE doesn’t just depend on retail sales for its policies. In fact, there’s still a good chance that Mark Carney and his gang will still delay a rate hike despite the presence of positive economic reports. But that’s just me. How about you? Do you think that the retail sales report is a game-changer for the BOE?