Another strong set of UK data is likely to bolster Pound Sterling heading into the weekend, helping it solidify gains against both the Euro and the Dollar.

UK retail sales jumped by 1.2% month-on-month in April, up sharply from 0.1% in March and far surpassing the forecast of 0.2%. This brought the annual growth rate to a robust 5.0%, up from 2.6% the previous month and exceeding the expected 4.5%.

According to the Office for National statistics (ONS), record sunshine in April boosted food retail sales, but the momentum goes beyond just favourable weather. The broader trend remains strong, with sales volumes rising 1.8% over the three months to April, the biggest quarterly gain since July 2021, Pound Sterling Live reports.

“Well now, that challenges the idea of a cautious consumer. Retail sales roared into spring,” stated Rob Wood, Chief UK Economist at Pantheon Macroeconomics. “Retail sales will pull back sharply in May but the uptrend looks solid.”

Furthermore, according to Sagar Shah, Associate Partner at McKinsey & Company: “Retail sales bloomed in April, lifted by warmer weather and Easter festivities. This 1.2% growth was the fourth consecutive month that sales volume grew, making it the largest three-monthly rise since July 2021. A notable trend that could be an early sign of consumer sentiment picking up.”

These strong retail figures come on the heels of Wednesday’s higher-than-expected inflation data and Thursday’s better-than-anticipated PMI results for May.

This series of positive surprises is reinforcing market sentiment that the Bank of England will likely deliver only one interest rate cut this year, rather than the two that were anticipated earlier in the week.

Moreover, as expectations for further rate cuts decline, UK bond yields are climbing more rapidly than those of other major economies, boosting demand for Sterling.

At the time of writing, the Pound to Euro exchange rate is holding a modest weekly gain of 0.07%, testing resistance around the 1.19 level. Meanwhile, the Pound to Dollar exchange rate has climbed to 1.3458, reflecting the currency’s upward momentum amid strong UK economic data.

“GBP/USD has risen by around 1.3% over the week so far. USD weakness is part of the story. But GBP/USD has also been supported by interest rate differentials. The two‑year differential between UK and US government bonds has moved back into positive territory this week because markets have pushed back the timing of the next Bank of England interest rate cut to November from September,” stated Kristina Clifton, Senior Currency Strategist at Commonwealth Bank.

While the Pound is managing to hold onto weekly gains, we believe it could be performing even better were it not for signs of market unease over the rising cost of UK government borrowing.

Concerns are growing around the UK’s worsening inflation and debt outlook, with some left-leaning government figures calling for additional tax increases.

These factors suggest that the second half of the year may pose greater challenges. However, for the moment, both the Pound and the broader economy appear to be benefiting from a period of relative strength.