GBP/USD Analysis: British Retail Sales Report Sends Sterling Up

NEW YORK (Forex News Now) – The British Office of National Statistics released a strong retail sales report for the month of October, sending the pound up against the dollar in early global forex trading today.

The report revealed that month-on-month retail sales rose by 0.5% in October, up from a previous 0.2% decline in September. Analysts had forecast a 0.4% increase, so the report was slightly better than anticipated.

Also, the Confederation of British Industry released a report that indicated the total order book balance rose to -15 in November, up from -28 in October and well above expectations for an increase to -24.

The strong report is good news for British retailers, who have endured two straight months of disappointing news regarding consumer demand and retail store performance. These figures suggest that the consumer spending recovery is still going on, despite overall weak momentum and a negative year-on-year rate at -0.1%.

There are concerns, though, that such a boost in spending is only temporary, and is underway only because the VAT – or value-added tax – is set to rise next year.  Therefore, according to some analysts, the report’s results are merely shoring up a spot of weakness ahead of what appears to be a difficult 2011 for the British economy.

Alan Clarke, an analyst with BNP Paribas, speculated on what the news means for the long term. “0.5% month-on-month growth at face value is a pretty respectable number.  But you have to keep in mind that’s an improvement after back-to-back declines. It’s also been buoyed by auto fuel sales. The underlying growth was pretty sluggish.

Wage inflation is very low, and employment growth is very low. So any increase is being eroded by inflation. And year-on-year growth is still negative. So I have to say it’s likely to get worse before it gets better.”

In response to the news, the pound rose 0.57% against the dollar, climbing to 1.5993 after falling flat against the dollar this week. The pound also rose slightly against the euro today, climbing 0.05% to 0.85 after falling considerably in early trading.

Currency market trading analysts are eyeing economic indicators very closely in the next two months, expecting significant downward pressures to emerge on the pound after the VAT increases in January and depresses consumer spending. Fiscal tightening and austerity measures are also set to begin in 2011, which could further dampen the economy and send the pound down.