GBP Holds Steady as Retail Sales Beat Expectations, but BoE Repricing Looms

The British Pound (GBP) is holding steady above recent lows as August retail sales exceeded expectations, reversing July's decline and strengthening market odds for a November Bank of England (BoE) rate hike. According to Brown Brothers Harriman's (BBH) Elias Haddad, the BoE may not need to tighten as much as markets expect.

UK August retail sales beat consensus estimates, increasing 0.5% month-over-month (m/m), compared to a decline of 0.5% in July. Excluding automotive fuel, retail sales rose 0.6% m/m, surpassing expectations of a -0.2% drop.

The data has firmed up market pricing for a November BoE rate hike, with odds now at around 90%, up from 83%. However, BoE Governor Andrew Bailey cautioned that a rate hike depends on the persistence of the Middle East crisis and the risk of second-round effects emerging.

Haddad suggests that the BoE may not need to tighten as much as markets expect, citing the UK economy operating below capacity, Bank Rate at 3.75% being near the top of the BoE's estimated neutral range, and fiscal policy likely turning more restrictive.