Ben Brettell, senior economist at Hargreaves Lansdown commented, ‘Given yesterday’s news that real wages are now falling, today’s retail sales data was always going to be closely scrutinised. The theory went that squeezed household budgets would likely hit retailers in the pocket too. But in fact the figures beat expectations handsomely, with sales in April 2.3 per cent higher than in March and growing 4 per cent year-on-year. April’s figures were always expected to be better than March, because of the timing of the Easter holiday, but economists had forecast a smaller rebound of 1 per cent and much more subdued annual growth of 2 per cent.’
He continued, ‘Currency traders reacted to the news by buying sterling, sending the pound above $1.30 for the first time since September. The FTSE continued to slide – the international nature of the index meaning a stronger pound is negative for UK plc’s overseas earners.’
Brettell next turned his thoughts to what the data tells us about the path ahead for the UK economy.
He said, ‘The balance of probability suggests that at some point the combination of higher inflation and lacklustre wage growth will take its toll on the UK consumer. But today’s numbers provide some welcome evidence the economy has made a brighter start to the second quarter following disappointing GDP growth of 0.3 per cent in the first quarter. With the labour market looking relatively robust, it’s possible the current mood of pessimism is unjustified.’
David Cheetham, chief market analyst at XTB commented, ‘The pound is trading higher across the board this morning and the recovery seen in the currency since hitting a multi-decade low in January has been impressive and looks set to continue. The retail sales figure itself was the best since the start of 2016 and will go some way to allay the fears of a slowdown in consumer spending following last month’s sharp drop in this widely viewed indicator. The release marks a 3rd consecutive day of GBP positive economic data, after both the CPI and unemployment figures surpassed estimates.’
He further noted that the number of currency traders who presently have investments that are ‘short-selling sterling-effectively betting on the currency falling is higher than is typically the case.
Short-sellers have to either renew or close those short positions. An improved economic outlook may mean that traders are reluctant to renew those short positions, and so will have to close them. Closing them involves buying sterling, and that would serve to put upward pressure on the value of the currency.
Chris Beauchamp, chief market strategist at IG Group, noted that the previous set of retail sales figures have also been revised upwards. He remarked that pessimist about the prospects for sterling are ‘less popular than Jeremy Corbyn’ right now, and added that there may not be much of a ‘consumer squeeze after all.’
It is also worth noting that the dollars has been weakened by somewhat softer economic data in the US, and the current speculation about the future of Donald Trump.