UK retail sales data appeared weak, causing a GBP/USD momentum slowdown. However, this currency is still supported by some other data.

The British pound receded in Friday's trading (August 18). UK retail sales plummeted much deeper than market expectations, halting the pound's rally in GBP/USD and various other GBP crosses. GBP/USD traded sideways in the range of the 1.2740s as it entered the New York session.

GBP/USD

UK retail sales data for July 2023 fell by -1.2% (month-over-month), whereas the consensus had only projected a decrease of -0.5% (month-over-month). Core retail sales tumbled even further, with a decline of -1.4% (month-over-month).

Retail sales for both the overall and core categories declined on a year-over-year basis in July 2023. Core retail sales recorded -3.4% (year-over-year), while overall retail sales were at -3.2% (year-over-year). In June, retail sales data for both categories were also revised downward to -1.6% (year-over-year).

The data looks very poor, reducing the market's buying interest in Sterling in the short term. Nevertheless, this decline is likely only temporary and does not impact the prospects of further interest rate increases.

The UK Office for National Statistics reports that the decline in retail sales occurred due to adverse weather conditions. Additionally, a massive promotion by one of the online marketplaces has driven more retail shopping activity online.

Samuel Tombs, the UK Chief Economist at Pantheon Macroeconomics, stated that the decline in non-store sales (online sales) during August is expected to balance out just a fraction of the in-store sales growth.

He also maintained the projection that real disposable household income is poised to experience a swift increase, estimating it to be approximately 2.0% higher in the fourth quarter than the previous year.

The United Kingdom raised the national minimum wage by nearly 10% in April, consequently driving wage growth in both the public and private sectors. Data on average earnings in the UK have shown acceleration over the past several months. This situation is expected to boost disposable income, leading to increased consumer spending in the future.

The Consumer Price Index (CPI) released for the UK on Thursday revealed that the Core CPI figure remained steady at 6.9% (year-over-year), despite the previous consensus anticipating a slight decrease to 6.8% (year-over-year). Analysts are becoming more confident about the prospects of the next interest rate hike in the UK due to the elevated inflation data and the acceleration of wage growth.