Sterling hit new heights yesterday with the Bank of England’s interest rate decision and has been boosted again this morning by retail sales data. It is currently at its highest level against the US dollar since March 2022 and against the euro since August 2022.
With the US Federal Reserve cutting aggressively the day before, the Bank of England’s clear refusal to budge on rates (with an eight to one vote from the Monetary Policy Committee) and no indication that it will next time either, sent money pouring in to gain the UK’s higher interest rates and sending the pound higher.
Andrew Bailey, governor of the BoE, said that: “Underlying inflation pressures continue to ease, but the broad data flow suggests little need for urgency.”
Sterling was already riding high after the US Federal Reserve’s half a percent cut on Wednesday boosted share prices. The pound and global stocks tend to move in tandem.
This morning two data sets appear to show a different picture from each other. Retail sales in the UK grew in August by 1%, more than double expectations. Taking out fuel, that represents a 2.5% growth in the quantity of goods bought in the past year.
However, we also heard that UK consumer confidence fell in September to its lowest level in six months. The markets are taking this as the new Labour government’s austerity message cutting through, with tax rises expected in the budget next month.
Is that mood cutting through to business? On Monday we will hear a ‘flash’ reading for the Purchasing Manager’s Index (PMI), across the western world, and will be able to compare the UK, which has been bullish in recent months, with the more pessimistic outlook from EU and US businesses.
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