GBP: Will sterling end the week higher or will retail sales data undermine it?

Reviewing the week, it has been a positive for the UK, which has been reflected in the sterling exchange rate which is up over 2.5% against the US dollar. This reverses some pessimistic views last Friday and over the weekend.

Economic data was stronger than expected. The Consumer Price Index (CPI), the Bank of England’s (BoE) preferred measure of inflation, pushed to 1.6%, more than expected. Following on from this was the labour data. Unemployment in the nation fell to 1.6 million in the three months up to November. This is the lowest number in over a decade, with the unemployment rate remaining steady at 4.8%. In addition, average earnings for the same period increased by 2.7%. This is important in relation to inflation and how this impacts the economy. Given the news on Brexit, it will be interesting to see if this trends continues.

The key event for the week, responsible for the majority of sterling gains, was the speech from Prime Minister Theresa May with regards to Brexit. While the lion’s share of the information was already in circulation, it was the tone and more collaborative stance of May that helped sterling rally. At the World Economic Forum at Davos she went on to comment that the UK is open for free trade. There has been criticism, both home and abroad, of May’s stance, so uncertainty will remain a constant threat with regards to political developments. We now at least know what the government is pushing for.

Looking to the last trading session of the week, we have another high tier data release from the UK. This time it is the retail sales numbers, a key economic reading because consumer spending makes up a large proportion of the Gross Domestic Products (GDP) numbers.