GBP: Strong UK data but BoE cut seen – TD Securities

TD Securities analysts note a sharp 1.8% monthly jump in UK Retail Sales and stronger-than-expected PMIs, with gains driven by broad-based demand and higher export orders. Despite better data and improved fiscal numbers, Analysts believe the MPC remains focused on underlying inflation and wages and has likely seen enough to justify a rate cut in March.

Solid data yet March cut expected

"Retail sales surged 1.8% m/m in January (TDS: 0.1%, mkt: 0.2%), nearly doubling the highest forecast in the Bloomberg survey. Purchases of artwork, antiquities, and gold drove the gain, though growth was seen across most of the major retail categories. On the margin, this should support GDP growth in January, but recall that retail sales data represents only about one-third of consumer spending, so doesn't feed into it in a major way."

"Separately, fiscal numbers were better than expected in January as the monthly surplus in January leaped to £30bn (mkt: £24bn), largely due to higher income tax receipts. This leaves fiscal YTD tracking sitting around £8bn better than the OBR's latest projections, and will bring some good news to the government ahead of the 3 March OBR fiscal forecast update."

"UK PMIs moved sideways with February's Manufacturing at 52.0 (TDS/mkt: 51.5; prior: 51.8) and Services at 53.9 (TDS/mkt: 53.5; prior: 54.0)."

"Combined with January's PMI strength, this feeds nicely into expectations of a positive Q1 GDP growth."

"Today's releases aren't going to bother the MPC too much one way or another - their focus remains firmly on underlying inflation and wage measures (and not just those in the employment report). We think the committee has seen enough this week to tip over the line to a March cut, but they'll still want to see the next batch of GDP & labour market data due before their mid-March decision."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)