Data this morning
revealed that UK retail sales grew by a whopping 2.1% in February, which is an
excellent result, particularly given the dire economic figures that have surfaced over Q1. This is the biggest monthly increase in three full years. Clearly
plenty of this can be attributed to a natural recovery from a fairly empty high
street in January as a result of the snowy weather. However, the strong showing
can’t be entirely attributed to a bounce back and driving the growth in particular was strong demand
for computer tablets, sporting goods and jewellery.
We can expect an overall improvement in UK retail sales over
Q1 as a whole, which should enable the UK to avoid the dreaded triple-dip
recession when the GDP data is released on April 25. In turn, this may well ensure that Mervyn
King, Paul Fisher and David Miles remain the three doves voting in favour of QE
at next month’s MPC meeting. That certainly doesn’t mean more won’t be
convinced by May, which is an important Inflation Report month.
Yesterday’s UK Annual Budget provided a little bit of help
for UK households in the form of a scrapped increase in fuel duty. However,
real wages are still on a downtrend and UK inflation has also ticked higher
lately, so we can be pretty confident that this morning’s UK retail sales won’t be
replicated any time soon. Still though, good news is good news and sterling has
benefited from it today. GBP/EUR is trading at €1.1750, only marginally lower than
its highest level since Feb 10. Against the US dollar, sterling is trading
close to the top of its one-month trading range, having just edged half a cent lower from $1.52.
Richard Driver
Currency Analyst
Caxton FX
