U.K. retail sales rise modestly in February, underlying trend seems positive

U.K. retail sales grew again, although modestly, in February, following the strong rise seen in the prior month. This is despite the surveys of retail activity from both the BRC and CBI indicating towards the possibility that retail sales volumes would be down in February. The headline sales volumes recorded a growth of 0.4 percent, while the core retail sales, which excludes auto fuel, rose 0.2 percent. Consensus expectations were for the core rate to drop 0.4 percent.

The underlying trend in retail sales appears to be positive, noted Lloyds Bank in a research report. On a rolling three-month basis, the headline retail sales grew 0.7 percent, a rise from 0.1 percent in the fourth quarter. Retail sales are likely to add more to the GDP growth in the first quarter than it did in the fourth quarter of 2018.

Fundamental backdrop for the consumer continues to be positive. Firstly, growth in real incomes continue to be positive. In spite of the rise in February CPI earlier this week, and with further rises expected in the months ahead, any rise above 2 percent is likely to be limited, said Lloyds Bank. In the meantime, the U.K. labor market continues to be tight. Assuming that the recent fall in corporate hiring intentions proves transitory, there is scope for further rises in pay growth in the year ahead.

These influences are expected to underpin consumers’ ability to spend, but developments around Brexit are expected to play a key role in their appetite to spend. Consumer sentiment in the U.K. continues to be negative, close to multi-year lows. Most of the recent fall likely reflects the effect of the ongoing uncertainty around the U.K.’s withdrawal from the EU.

“This suggest there is scope for a significant turnaround in sentiment once some of the fog of Brexit starts to clear, which should provide some additional support to consumer spending over the coming months and quarters”, added Lloyds Bank.

At 14:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral at -30.6945 while the FxWirePro's Hourly Strength Index of US Dollar was bearish at -76.3212 more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex