Last Friday, official data revealed that British retail sales unexpectedly increased in September, countering earlier indications that consumers were pessimistic about potential tax hikes ahead of the new government’s upcoming budget later this month. Sales volumes rose by 0.3% in September, surpassing economists’ expectations of a 0.3% decline. As a result, the pound sterling gained 0.28% against the US dollar, closing at $1.3047. 

(GBPUSD Daily Price Chart, Source: Trading View) 

“After a period where high inflation led consumers to spend more but receive less in return, we are now thankfully seeing spending growth accompanied by increased volumes of goods,” said Joshua Mahony, a strategist at Scope Markets. With markets still uncertain about the likelihood of a rate cut at the Bank of England’s November and December meetings, stronger spending data could temper expectations of dovish action. 

Meanwhile, the Bank of England is expected to reduce interest rates at least once more this year, likely in November, with the possibility of an additional cut in December. However, with inflation proving more persistent in the UK than in the US, especially in the services sector, and economic activity remaining stable, the BoE is likely to proceed cautiously when considering further reductions in borrowing costs. 

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