The British pound generally consolidated losses above 1.97 over the course of the day after UK retail sales fell for the first time in three months as the deteriorating housing market and restrictive credit conditions have started to weigh on sentiment. However, Cable faces heavy event risk from upcoming UK data, as Q1 GDP is forecasted to rise only 0.4 percent from Q4, while the annualized pace is anticipated to slow to 2.6 percent from 2.8 percent.
Indeed, the minutes of the Bank of England’s April meeting showed that the Monetary Policy Committee noted that the “housing market was weakening, with prices falling, so there was an increased downside risk to residential investment and to consumption. But mortgage arrears and possessions still remained low, and employment had been rising…But it was still unclear how far these housing market developments would amplify the expected slowdown in consumption growth.” Nevertheless, as the MPC said, consumption and output has slowed, “but not yet by as much as expected at the time of the February Inflation Report.” Overall, the risks for this GDP report – and thus, the British pound – are to the downside, as tighter credit conditions and a marked weakening in the housing sector likely took a toll on domestic demand.