Pound Sterling edged higher against major peers after UK retail sales surprised to the upside, suggesting consumers are holding up better than expected in the face of rising energy costs.
The Pound to Dollar exchange rate (GBP/USD) rose to 1.3534 (+0.51%), while Pound-to-Euro rate climbed to 1.1545 (+0.17%), as stronger domestic data lent support to the currency.
Retail sales volumes rose 0.7% month-on-month in March, rebounding from a February decline and beating expectations. Even excluding fuel, sales still posted a modest gain, pointing to underlying resilience.
Pantheon Macro said the data offers early signs that households are absorbing the initial shock from higher energy prices.
“Consumers largely brushed off the initial shock,” it noted.
Some of the strength was driven by fuel purchases, but broader categories also improved, including clothing and household goods, suggesting a recovery from weather-disrupted activity earlier in the year.
The bigger picture is that consumer spending is contributing positively to growth. Pantheon estimates retail activity added around 0.1 percentage points to Q1 GDP, increasing the likelihood that overall growth outperforms central bank forecasts.
More importantly, the data hints at a shift in household behaviour.
“There are tentative signs that consumers are willing to run down their high saving rate to support consumption,” Pantheon said.
That could help cushion the economy through the early stages of the energy shock, although the outlook remains challenging. Rising inflation is expected to erode real incomes over the coming months, limiting the pace of spending growth later in the year.
Pantheon still expects consumption to slow, but the stronger starting point provides some reassurance that the downturn may be gradual rather than abrupt.
Some of March’s rebound may also prove temporary. A portion of the gain reflects pent-up demand following poor weather, while fuel sales could reverse in coming months after front-loading.
Even so, the data reinforces the view that the UK economy entered the current energy shock in relatively stable condition.
For the Bank of England, resilient consumption adds another layer of complexity. While weaker real incomes argue for caution, firmer demand and underlying inflation pressures reduce the urgency for rate cuts.
For now, Sterling is benefiting from that balance — supported by solid data, but still sensitive to how the growth-inflation trade-off evolves.
