Retail sales in January increased by 1.7% month on month, far exceeding expectations

According to data released by the Office for National Statistics (ONS), retail sales in January increased by 1.7% month on month, far exceeding market expectations of 0.3%, indicating a rebound in consumer spending in the UK.

Pre value correction: The retail sales data for December has been revised up from -0.3% to -0.9%, reflecting the weak consumption at the end of last year, while the rebound in January indicates a recovery in market confidence.

Year on year data: Retail sales in January increased by 1.0% year-on-year, although lower than the previous value of 2.8% (3.6% before correction), still better than the market expectation of 0.6%, indicating that British consumers still maintain a certain purchasing power in a high inflation environment.

The resilience of the UK economy is strengthened, and the expectation of the Bank of England cutting interest rates may be postponed

The strong performance of retail data has strengthened market confidence in the UK economy and may prompt the Bank of England to maintain current interest rates in the short term rather than rushing to cut rates.

Market expectation change: Previously, the market generally expected the Bank of England to start cutting interest rates in 2025, but if subsequent economic data continues to perform well, the central bank may postpone the timing of policy adjustments.

Inflation remains a key factor: despite the rebound in retail sales, high inflation remains a core challenge for the UK economy. The Bank of England will closely monitor the latest developments in inflation and the job market when deciding whether to adjust policies.

The pound may maintain its strength in the short term

Due to strong retail data, the pound received short-term support and market sentiment improved.

If the subsequent UK economic data (such as CPI and employment data) also improve, the pound may further rise.

But if inflation remains high, market expectations for the Bank of England's policies may waver again, and the trend of the pound remains uncertain.

Editor's viewpoint: Although retail data is optimistic, there is limited room for the pound to rise

The strong performance of UK retail sales data in January boosted the pound in the short term, but the market should not overinterpret the monthly data. The UK economy still faces challenges of high inflation, wage growth pressure, and a global economic slowdown, and the data in the coming months will determine the true trend of the pound.

If inflation remains high, the Bank of England may have to maintain higher interest rates for a longer period of time, which could support the pound but also suppress economic growth. Therefore, investors need to remain cautious and closely monitor future economic indicators and central bank policy signals in the UK to assess further trends in the pound.