Pound Rises as Spending Shows U.K. Still Thriving After Brexitby
Retail sales climb 1.9% in October versus 0.5% forecast
U.K. data ‘has defied gravity’ since referendum: BofAML
The pound gained versus the euro for a second day after data showed U.K. spending surged in October, signaling a resilient economy months after the Brexit vote.
Retail sales were well above economists’ estimates, the latest in a series of positive data underpinning sterling. The volume of goods sold in stores and online jumped 1.9 percent from September, when it rose 0.1 percent, the Office for National Statistics said Thursday. The pound erased gains against the dollar as Federal Reserve Chair Janet Yellen said the U.S. central bank is close to raising interest rates.
“U.K. data has effectively defied gravity over the past three or four months in the aftermath of the EU referendum,” said Kamal Sharma, director of Group-of-10 currency strategy at Bank of America in London. “We could see a continuation of this consolidation in sterling which is recovering from oversold levels.”
The pound rose 0.4 percent to 85.56 pence per euro, as of 5:22 p.m. in London. It was at $1.2453, halting three days of declines. Fed Chair Yellen signaled a U.S. rate hike was imminent, in testimony before the U.S. Congress’s Joint Economic Committee in Washington Thursday.
Although retail-sales data are just the latest to show better-than-forecast U.K. growth since the June 23 referendum, the economy is forecast to slow down beginning in 2017. Employment growth is already slowing and household incomes are coming under pressure as the fall in the pound since Britain’s decision to leave the European Union spurs inflation.
“Data deterioration is going to be slow,” said Sharma, who sees the currency falling to $1.15 by the end of the first quarter of 2017. “We are expecting to see higher inflation in 2017; we are expecting a slowdown in growth but it’s not going to be here and now.”