UK May Retail Sales Beat 1.2% vs 0.5% Forecast, Cable Steady

UK retail sales rose 1.2% in May, the Office for National Statistics said Friday, nearly double the 0.5% consensus estimate. The print reversed a downwardly revised 1.0% drop in April, which had been the largest monthly decline in over a year.

The ONS revised April's decline from -1.3% to -1.0%, meaning the two-month picture is slightly less weak than previously reported. The three-month-on-three-month rate of 0.4% compares with 0.6% in the three months to February, indicating a modest slowdown in the trend. The May data was boosted by promotions and good weather. Retailers reported strong sales of computers and telecommunications equipment following product releases in March. Department stores also benefited from the weather, the ONS said.

The Bank of England meets next week for its June policy decision. Markets price a roughly 70% chance of a quarter-point rate cut in August. A single retail sales print is unlikely to shift the consensus view on the BoE's path, traders said. The May inflation and wage data, due later this month and early July, will carry more weight.

The MPC's next decision is June 19. The focus remains on August, when the central bank will publish updated growth and inflation forecasts. Services inflation has been the main obstacle to rate cuts. April services CPI held at 5.9% according to the ONS. The May print will be released June 18. If services inflation eases, the case for an August cut strengthens.

Sterling barely moved on the retail sales release, traders said. GBP/USD profile traded near 1.3370, inside the range it has held since mid-May. The pound's sensitivity to UK data has waned. Global drivers in the dollar and risk appetite have taken precedence, traders said. The dollar index was steady.

The pound has been resilient, supported by the UK's relatively high interest rates and a growing economy. The current-account deficit and political uncertainty limit upside. The near-term range for cable is 1.32-1.35, traders said. EUR/GBP was little changed near 0.8620.

The consumption data fits an economy growing modestly. The underlying three-month trend of 0.4% is consistent with a gradual recovery rather than a boom that would trigger the BoE to delay cuts. The hot weather boost is temporary and may fade in June.

The May retail sales data comes after a run of mixed UK economic signals. GDP grew 0.2% in the first quarter according to the ONS. Industrial production fell 0.4% in April. The services sector PMI eased to 52.8 in May, S&P Global said. The overall picture is tepid growth without inflationary pressure.

Gilt yields were little changed after the data. The 10-year yield hovered near 4.10%.

The next key UK data is the June CPI release on July 16, the last inflation print before the August MPC decision. The ONS also publishes May GDP on July 11. The retail sales data will feed into the quarterly national accounts scheduled for June 30.