UK retail sales volumes rose 0.5% in August, beating forecasts and pushing annual growth to 2.4%. Barclays now expects the Bank of England to raise rates in November and February 2027 after the central bank flagged rising inflation risks.
Retail sales beat forecasts
UK retail sales volumes rose 0.5% month-on-month in August, reversing July's 0.5% decline and beating expectations for a 0.3% contraction. Annual growth accelerated to 2.4%, above the 1.9% consensus and up from a downwardly revised 1.2%. Retail sales excluding autos and fuel rose 2.7% year-on-year, versus 1.9% expected and a prior reading revised to 1.8%.
Non-food stores led the monthly recovery, with department store sales up 1.8% after rebounding from July's stock-availability problems. Non-store retailers also partially recovered, while online spending values rebounded to a 2.5% increase after falling 4.2% in July, lifting online's share of total sales from 28.4% to 28.8%. Automotive fuel was the main area of weakness, as volumes fell while prices rose sharply and consumers made fewer journeys.
Barclays shifts its BoE call
Barclays now expects the Bank of England to raise rates by 25 basis points in November and again in February 2027, reversing its previous forecast, after the MPC held Bank Rate at 3.75% in September and warned of rising inflation risks tied to the Middle East conflict and higher energy prices. The bank cited MPC minutes showing policymakers now expect inflation to exceed 4% in the first quarter of 2027 and see a greater risk of second-round inflation effects.
The MPC voted 6-3 to hold rates, with members Greene, Mann and Pill backing an immediate rate hike. Barclays expects the next move after November to land in February rather than December, citing weak labour-market conditions, and sees the terminal rate at 4.25%. The MPC also confirmed it will trim its Asset Purchase Facility holdings by £20 billion this year, taking the planned unwind to £50 billion.
A stronger-than-expected retail reading would generally support sterling and UK yields by reinforcing the case for tighter BoE policy, though markets remain focused on whether persistent inflation pressure forces the central bank's hand further.
Sources: ActionForex, InvestingLive, Investing.com
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