The UK retail sector came into focus yesterday morning with data showing sales increasing by 1.7% in February following a 2% drop in January. Sales volumes were up by 1.6% in the three months leading up to February, the strongest since August 2013.
Retail spending accounts for 20% of GDP; thus should spending stay even the same in March then we could see an extra 0.2% added to 1st quarter GDP – this would more than double the amount in the fourth quarter.
Whilst there are fears that consumer spending may not be sustainable, the fact that real wages are picking up and unemployment has been declining; these fears may be overdone.
The pound flourished on the back of these results with a notable gain against the euro, which has been weakening given the ECB’s stance that they would be willing to take action to overthrow the strength of the euro. The pound reached a 20 day high against the euro and attempted to break the March 19th high against the US dollar.
Data revealed that the US economy grew at a faster pace to 2.6% from 2.4%, albeit missing expectations of growth of 2.7%. US GDP is still lower than the 4.1% growth seen in the third quarter of 2013.
Consumer spending which makes up two thirds of the economy rose to a three year high to 3.3%, which is encouraging for the US economy as well as the data which revealed that the number of people filing for jobless claims dropped by 10,000 in the week ending 21st March. The US dollar managed to claw back some of its initial losses to the pounds and gained by 0.3% against the euro.
Data is set to reveal this morning that the UK economy grew by 0.7% in the last quarter of 2013 and already we have had data from market researchers GfK confirming that consumer confidence is picking up. The pound has already started the day on the rise.
Eurozone consumer confidence is also set to rise marginally for March along with economic sentiment indicator and services sentiment. However German inflation is set to fall from 1.2% to 1.1% which could put the euro under pressure.