The British pound edged down to $1.265 after early February PMI data signaled stalled business activity for the fourth consecutive month, with rising job losses driven by weaker sales and mounting cost pressures.
Sterling edges down slightly
The combination of stagnation and persistent inflation has raised concerns about a potential stagflationary environment, complicating the Bank of England’s policy outlook as it weighs the risks of high inflation against sluggish economic growth.
Despite the slight pullback, sterling remains up about 0.5% for the week, having reached its highest level since December 17 following a hotter-than-expected inflation report. The latest figures showed that price pressures remain stubborn, potentially delaying the central bank’s timeline for rate cuts.
Retail sales surprisingly increased
Meanwhile, UK retail sales data provided a surprising upside, with both headline sales and core sales (excluding fuel) exceeding all forecasts, suggesting some resilience in consumer spending despite broader economic concerns. The positive retail figures offered a glimmer of optimism in an otherwise mixed economic landscape. Additionally, the Office for National Statistics reported a UK budget surplus of £15.4 billion in January, though this fell short of the £20.3 billion consensus estimate, reflecting lower-than-expected tax receipts.
Sentiment remains negative
On the sentiment front, GfK’s consumer confidence index remained in negative territory but showed improvement across all key subcategories in February. Consumers appeared slightly more optimistic about their personal financial outlook and the broader economic environment, though confidence remains fragile amid lingering cost-of-living pressures and uncertainty over future interest rate decisions.
Looking ahead, investors will closely monitor upcoming inflation and labor market data, as well as any signals from the Bank of England regarding its policy stance. The trajectory of the pound will likely depend on how policymakers balance inflation risks with the need to support economic growth in the coming months.
