Sterling above $1.30 as retail sales net Easter boost

The pound has returned to levels against the dollar not seen since last September, in the wake of its post-Brexit vote slump.

Sterling, which has been flirting with the $1.30 level in recent days amid a weakening of the dollar, sped past the milestone as soon as UK retail sales figures for April were released.

They suggested economists’ fears about a slump in consumer spending may be overblown as the Office for National Statistics (ONS) reported the biggest rise in the value of retail spending in 15 years over the three months to April – up 6.2% on a year earlier.

Sales volumes jumped 2.3% on the month – more than double economists’ forecasts – which followed the weakest quarter since 2010 between January and March as consumers seemingly tightened their belts.

The ONS said there was evidence that fine weather had boosted demand in April despite growing pressure on household budgets.

It had confirmed earlier this week that price increases – a consequence of sterling’s weakness making imports more expensive – were outpacing wage growth for the first time since 2014.

Rising inflation is expected to take its toll on consumer spending this year, knocking the main engine behind UK economic growth since the end of the financial crisis.

The Bank of England has forecast that business investment and higher export demand should help offset a consumer slowdown.

Howard Archer, chief European and UK economist at IHS Markit, said the unexpectedly high rebound in retail sales boosted UK second quarter growth prospects.

"It buoys hopes that consumer spending will not hamper UK GDP growth as it clearly did in the first quarter," he said.

"It is evident that the more than halving of UK GDP growth to 0.3% quarter-on-quarter in the first quarter of 2017 (from 0.7% in the fourth quarter of 2016) was primarily the consequence of previously buoyant consumers reining in their spending as purchasing power was hit hard by inflation and low earnings growth.

"However, April’s jump in retail sales looks unlikely to mark the beginning of a renewed upturn in consumer spending given the sharp and increasing squeeze on purchasing power."

While the retail sales figures injected life into sterling, the recovery to $1.30 also reflects deteriorating confidence that US President Donald Trump will be fully focused on his massive investment programme given the political crisis engulfing him in Washington.

A recovery in sterling’s value – while still way below its pre-referendum level above $1.50 – could help limit the threat to households from inflation in the months ahead.

(c) Sky News 2017: Sterling above $1.30 as retail sales net Easter boost