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Euro Pound (EUR GBP) Slides as UK Retail Sales Smash Expectations

Pound Euro exchange rate forecast
  • Euro Pound Slips to 0.8832 – Pound Euro Climbs to 1.1310
  • UK Retail Sales Demonstrate Significant Leap – Pound Bolstered
  • German Producer Prices Beat Expectations – EUR GBP Unable to Capitalise

The Euro Pound exchange rate took a tumble today as British retail sales demonstrated an unexpected surge in August.

The Office for National Statistics (ONS) reported this morning that retail sales in the UK climbed 1% month-on-month, compared to the 0.2% growth estimate and the upwardly-revised 0.7% print in July.

The year-on-year figure also proved extremely positive, printing at 2.4%, up from the previous period’s 1.4% and smashing the forecast of 1.4%.

This sharp uptick in retail sales was the largest seen since April and revealed that spending remains on good form, despite inflationary pressures and slow wage growth.

The market reaction to this news was positive, especially in light of recent comments from the Bank of England (BoE), who stated that interest rate hikes are all the more likely if the British economy strengthens (along with inflation).

Katie Davis, a Statistician at ONS stated:

‘Within this month’s retail sales we are seeing strong price increases…. However, we are still seeing underlying growth in sales volumes, and with strong growth in non-essential purchases’.

It should be noted, however, that the ONS also stated that near-record sales growth is required in September to prevent a Q3 slowdown from the three months to June.

The Pound quickly capitalised.

German Producer Prices Exceed their Forecast – EUR GBP Falls Regardless

Producer prices in Germany rose somewhat faster than economists predicted last month, propelled higher by a jump in energy inflation.

Year-on-year producer prices climbed 2.6% in August; higher than the 2.3% recorded in the previous period and above the forecast of 2.4%.

This leap was caused by an increase in all of the price indices of the major industrial groups, with intermediate goods rising by 3.3%, consumer goods by 3.6% and energy prices – the main contributor – by 2.7%.

Whilst this news reflected well on Germany’s economic performance, it did little to bolster the single currency, which remained falling in the wake of the Pound’s retail sale-driven climb.

Euro Pound Forecast: Markets Gain Confidence in Prospects for Theresa May’s Friday Speech

On Friday UK Prime Minister Theresa May will travel to Florence to deliver a speech regarding the future of the United Kingdom outside of the EU.

Whilst many have speculated on what this entails, markets have become somewhat more confident today in the wake of reports that May might seek to offer the EU €20BN in payments to the bloc, stopping after the cessation of a proposed ‘transitionary’ period.

This proposal follows a turbulent day in which UK Foreign Secretary Boris Johnson was reported to be willing to resign over the Prime Minister’s Brexit strategy, something that now seems to have prompted a truce within the Conservative Party.

Such news could help to loosen, if not break, the current Brexit deadlock, with the ‘divorce’ figure having proved one of the largest obstacles in the way of progress for negotiations.

Because of this, the Pound has gained even more footing in the build-up to the event, though this could all change in the blink of an eye, with reports on the subject already proving to provoke extreme volatility for Sterling.