UK retail sales in June rose by 0.9% month-on-month, falling short of the expected 1.2%. The previous month’s decline was revised from -2.7% to -2.8%. On a yearly basis, retail sales increased by 1.7%, compared to the anticipated 1.8%.
Excluding autos and fuel, retail sales rose 0.6% month-on-month, below the expected 1.2%. The previous month’s figure was revised to -2.9% from -2.8%. Yearly, sales excluding autos and fuel increased by 1.8%, just shy of the 2.0% expected.
Factors Driving Sales
The rise in sales volumes was mainly driven by food stores, with the warm weather contributing positively. Online sales, mainly from non-store retailers, rose by 1.7%, marking the highest increase since February 2022. Retailers attributed this to promotions and favourable weather conditions.
Overall, the data shows an improvement from a poor performance in May. However, these figures are unlikely to affect the Bank of England’s outlook.
The latest retail figures, while showing a rebound from a weak May, missed analyst forecasts. This data suggests consumer spending is recovering but lacks the strength to force a policy shift from the Bank of England. We agree with Low’s assessment that this release is unlikely to change the central bank’s current outlook.
With UK core inflation having remained sticky around 2.3% for the past few months, this lukewarm consumer activity provides no incentive for a more aggressive stance. The Office for National Statistics recently confirmed that GDP growth was flat in the previous quarter, reinforcing a picture of a fragile economy. Therefore, we anticipate that policymakers will continue to hold rates steady through the summer.
Market Implications
This situation is reminiscent of the prolonged period of economic stagnation seen through late 2023 and early 2024, where similar mixed data led to an extended pause. During that time, traders who positioned for significant policy shifts were consistently disappointed by the central bank’s patience. History suggests that without a major economic shock, the path of least resistance is to wait for more conclusive data.
For those trading short-term interest rate derivatives, this points towards reduced volatility. We believe instruments tied to the SONIA rate will likely trade within a tighter range than we have seen in previous months. This environment may favour strategies that profit from time decay and minimal price movement in the underlying rates.
The pound sterling is also unlikely to find a strong catalyst for a sustained rally from this domestic report. Without the prospect of higher interest rates to attract capital, the currency may struggle, particularly as the US Federal Reserve continues to signal its own cautious approach. We would consider options strategies that benefit from range-bound price action on currency pairs like GBP/USD in the immediate term.
