Sterling dipped on disappointing UK retail sales data on Thursday, before recovering as investors remained confident the Bank of England will hike interest rates next month. Retail sales suffered their worst quarter in a year in March thanks to snow storms which deterred shoppers. The Office for National Statistics reported on Thursday that sales fell 1.2 per cent in the month in which the so-called “Beast from the East” struck the UK.
For the first quarter as a whole, retail sales volumes were down 0.5 per cent – the biggest quarter-on-quarter fall since the beginning of 2017. Retail sales account for around 20 per cent of UK GDP and the first quarter drop adds to the evidence that the overall UK economy slowed in early 2018 from the 0.4 per cent rate of expansion in the final quarter of 2017. The statistics agency said that petrol sales volumes plunged by 7.4 per cent in March – the largest decline since April 2012 – which it said was a “likely consequence of adverse weather conditions which impacted travel”. As well as this, food-store and non-food store sales volumes both fell by 0.6 per cent.
The dollar was little changed against a basket of currencies on Thursday as higher U.S. bond yields and expectations of more rate increases from the Federal Reserve offset worries about a trade war and a ballooning U.S. budget deficit.
Recent economic data suggested business activities overseas may have peaked. This has reduced the appeal of the euro, yen and other currencies which have strengthened against the dollar since 2017 based on the view economies outside the United States had been faring better until recent weeks.
The U.S. economy, while not firing on all cylinders, has remained on a steady growth path which has assured the Federal Reserve to stick with its current pace of rate increases.