Pound Sterling Gains as Retail Sales Rebound Strongly in May

Sterling rose against the dollar and the euro on Friday after UK retail sales rebounded more strongly than expected in May, the latest sign that consumer spending is holding up despite higher energy costs and elevated borrowing costs. The Office for National Statistics reported that retail sales volumes increased in May, beating consensus forecasts. The pound gained against both currencies, traders said.

The data adds to evidence that the UK economy is more resilient than many had expected. A stronger-than-forecast GDP print earlier this month had already pushed back expectations for a Bank of England rate cut. Friday's retail sales figures reinforce that narrative, traders said. The combination of solid growth and sticky inflation gives the BOE little reason to ease policy in the near term.

UK gilt yields rose after the release, widening the premium over US Treasuries. That yield advantage supported sterling, which traded near session highs against the dollar and the euro through the afternoon.

The retail sales report follows a string of positive UK data surprises that have kept the pound bid in recent weeks. Consumer spending accounts for roughly 60% of UK GDP, so the resilience in May suggests the economy entered the third quarter on a firmer footing. That reduces the risk of a recession that some economists had warned about earlier this year.