U.K. retail sales rises strongly in May, GDP growth likely to accelerate in Q2

U.K. retail sales rose again in May after rising strongly in the prior month. This eased concerns regarding the health of the U.K. consumer. On a sequential basis, retail sales rose 1.3 percent, as compared with consensus expectations of 0.5 percent. On a year-on-year basis, the retail sales rose 3.9 percent, as compared with market expectations of 2.4 percent and April’s 1.4 percent. Over the month, ‘core’ retail sales, which strips auto fuel, rose 1.3 percent to deliver a much stronger rise than was anticipated by market.

The arguments for a company outturn for retail sales last month were compelling. The marked rebound in the weather, the royal wedding and the continued feed-through from a rebound in household real incomes underpinned a second-consecutive monthly rise. The effect of the former was seen in sales at clothing and footwear stores and food stores, while the overall rebound in purchasing power was reflected in rises in all but one of the main categories of retail spending.

The outlook for the consumer sector appears to be relatively positive, noted Lloyds Bank in a research report. The headline CPI has eased back from its peak and, notwithstanding a sticky patch over the next few months, is likely to drift lower into year-end. Meanwhile, the U.K. labor market continues to be tight and following the recent pause, wage inflation is likely to push higher over the months ahead. These influences are expected to ease some of the pressure on households’ balance sheets, giving a supportive backdrop for consumer spending.

Today’s report gives further insight into the second quarter economic growth. Along with the rise seen in April, the further rise in May retail sales, indicates towards stronger U.K. activity than has been implied by some other data, including the April industrial production and construction output reports.

“Consequently, today’s report provides some comfort over the UK’s near-term growth outlook and reinforces expectation of an acceleration in GDP in Q2”, stated Lloyds Bank.

At 15:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral at 21.8999, while the FxWirePro's Hourly Strength Index of US Dollar was bullish at 84.7208. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest