British Pound: Improved UK growth-inflation mix backs Sterling – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad highlights that GBP/USD is consolidating near 1.3300 as United Kingdom (UK) data signal a more favourable growth-inflation mix. Strong PMIs and repeated retail sales beats reduce near-term growth concerns, while easing inflation expectations give the Bank of England (BoE) room to stay patient. However, retail sales details suggest the strength is driven by temporary factors rather than a sustained consumer boom.

Data support but consumer boom questioned

"GBP/USD is consolidating near yesterday’s lows around 1.3300. Today’s UK data point to a more favorable UK growth-inflation mix that is GBP supportive. Stronger PMIs and retail sales reduce near-term growth concerns, while lower inflation expectations (both 1 and 3 years ahead) give the BoE room to stay patient."

"The UK July PMI surprised to the upside. The composite PMI increased to a three-month high at 52.1 (consensus: 49.8, prior: 48.8) reflecting both a recovery in services business activity and a faster expansion in manufacturing production."

"UK retail sales beat forecast again. Total retail sales volumes increased 1.0% m/m (consensus-0.3%) vs. 1.2% in May. Excluding automotive fuel, retail sales were up 1.1% (consensus: -0.5%) vs. 1.2% in May."

"The headline is clearly positive, but the details are not consistent with a sustained consumer boom. Promotions, hot weather, and World Cup spending provided much of the boost."

"The BoE’s DMP business survey of inflation expectations eased in July. Both 1-year and 3-year inflation expectations fell -0.3ppt to 3.0% (matching the February low) and 2.6% (the lowest since October 2024), respectively."