Based upon the degree of retail sales growth in the month of May, the Bank of England should have nothing to worry about. Consumer spending grew by 3.5 percent, the largest rise on record, driving the British pound higher against all of the major currency pairs.
Despite rising gasoline prices and falling house prices, the unseasonably warm weather last month drove robust demand for food and clothing. This number indicates that the UK consumer is far more resilient than anyone had previously anticipated and if the degree of spending continues, the Bank of England could raise interest rates before the end of the year. The only clue that retail sales could have been firm was the BRC retail sales report. In yesterday’s Daily Fundamentals, we said that the “rise in the BRC retail sales report suggests that consumer spending will be strong.” Conflicting reports on the economy makes the Bank of England’s job even more difficult. Although they may be more compelled to raise rates because of the report, there are still many signs of weakness. Therefore expect rates to be left unchanged for at least a few more months until the BoE can make a clearer assessment of the economic outlook.