Pound Sterling traded in narrow ranges against the euro and dollar after UK retail sales posted a modest rebound in December, offering tentative evidence that consumer demand is recovering after months of Budget-related uncertainty.
The pound to euro (GBP/EUR) exchange rate was last at 1.14966 (+0.1%), while GBP/USD hovered around 1.34957 (-0.03%), as investors weighed firmer spending data against a still-fragile economic backdrop.
Official figures showed retail sales volumes, including fuel, rose 0.4% month-on-month in December, outperforming expectations and reversing November’s decline.
Pantheon Macroeconomics said the improvement likely reflects easing tax and fiscal uncertainty, which had weighed heavily on household spending through the autumn.
However, analysts cautioned that the rebound will be of limited comfort to retailers after a disruptive run-up to the November Budget, with quarterly data still pointing to softer underlying momentum.
Pantheon also stressed that the official series is highly revision-prone and may currently understate the resilience of consumer demand, noting that retail spending held up relatively well across 2025 and should continue to recover into 2026 as inflation falls and interest rates ease.
Lloyds Bank struck a more measured note, warning that month-to-month movements remain noisy and distorted by changing seasonal patterns.
While annual growth in sales volumes looks encouraging, the bank said weaker quarterly momentum suggests the recovery is uneven.
Lloyds highlighted a further improvement in consumer confidence in January, particularly around personal finances, which could support spending as real incomes improve.
But it flagged rising energy prices as a key risk that could yet cap any sustained rebound in consumption.
Today’s UK data points to a consumer sector that is stabilising rather than accelerating, leaving the near-term British pound outlook sensitive to incoming evidence on inflation, incomes and the timing of Bank of England rate cuts.
