Let’s take a closer look at the U.K. consumer spending numbers and its impact on the pound and the U.K. economy.
Just minutes ago the U.K. printed its consumer spending numbers, which showed a 1.7% uptick from January to February. Analysts had been expecting a mere 0.5% monthly growth. On an annualized basis retail sales is still up by 3.7% compared to its 3.9% gain last month.
A closer look reveals that spending on food, auto fuel, and internet and mail order contributed the most to the report’s monthly rise. The 2.1% increase in food sales alone translates to half of the overall retail sales increase. Auto fuel sales also rose by 0.9% while internet and mail order jumped by a whopping 7.9%. Aww yeah!
Impact on the economy
Analysts speculate that the rise in consumer spending was due to the improvement in the labor market, low inflation, and rising house prices. What really caught the investors’ attention though, was the possibility of higher U.K. GDP growth. The Office for Budget Responsibility had already upgraded its 2014 growth forecasts from 2.7% from its 2.4% estimates in December.
Market players now expect retail sales to play a bigger role in Q1 2014’s growth numbers, which could also put more pressure on the BOE to raise its interest rates.
Impact on the pound
Not surprisingly, the pound popped up across the board on the news. Pairs like GBP/USD, GBP/JPY, GBP/AUD, and EUR/GBP showed pound strength to the tune of 30 pips in the first 15 minutes of the release.
It doesn’t look like the moves will be sustained though, since the pairs are currently consolidating on the 15-minute time frame. It’s also possible that the pound bulls are waiting for London session traders to finish their lunches or the U.S. session bulls to step before they continue to push the currency higher. In any case, keep an eye on the pound’s price action over the next couple of hours to see if the report is enough to inspire another pound rally.