U.K. Retail Sales Exceeds Expectations: ETFs In Focus

Retail sales in the United Kingdom reflected an impressive increase, per data released by Office for National Statistics (ONS).

Sales Growth

Retail sales grew 2.4% in August on an annual basis compared with a revised 1.4% in the previous month, and way above economists’ expectations of 1.3%.

This data makes it evident that higher prices were not a deterrent for consumer spending and that it increased despite a wage squeeze. Wages in the United Kingdom are not increasing as fast as inflation. It grew 2.1% in the three months to August.

Economic Data

Consumer price index increased 2.9% year over year in August compared with 2.6% last month, per data released by the Office for National Statistics. It equaled May’s four-year high of 2.9% and was above market expectations of a 2.8% increase. Core inflation, which excludes volatile items such as food and energy, increased 2.7% in the month. The primary driver of inflation growth in August was clothing and footwear prices, which increased 4.6% year over year.

In the second quarter, U.K. GDP grew 0.3% sequentially and 1.7% year over year. Although this reflects a slight increase from 0.2% sequential growth in the first quarter, the rate of improvement has been dismal since Brexit. The U.K. economy was the worst performer in the region, having logged growth that was just half that of the entire Eurozone (read: U.K. GDP Edges up in Q2: ETFs in Focus).

Rate Hike in the Cards?

Bank of England (BOE) officials expect the inflation reading to edge higher in October and stated that continuous increase in inflation will prompt the committee to hike rates sooner than expected by the markets.

The sharp increase in inflation is owing to Brexit, as the fall in pound made imports costlier. Moreover, unemployment is at a 42-year low of 4.3%.

Although the economy is currently weak, the inflation reading is almost a percentage point above the BOE’s target. Hence, a rate hike might be enacted later this year to keep inflation in check.

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