Sterling steady after upbeat data

LONDON: The British pound was steady on Friday but still headed for a weekly loss against the dollar and the euro as softer-than-forecast inflation data offset Friday’s upbeat retail sales, consumer confidence and business activity figures.

While another rate cut from the Bank of England in 2025 is not a foregone conclusion, the week’s data has left the door ajar for the central bank to lower borrowing costs again by the end of the year.

Sterling was little changed against the dollar on Friday at USD1.3319, but was set for a weekly drop of 0.9 percent.

Against the euro, the pound was little changed at 87.17 pence, but was set to have its first weekly fall against the single currency in four weeks.

Data on Friday painted a slightly rosier picture of the economy heading towards the end of the year. British retail sales unexpectedly rose in September, boosted by technology sales and demand for gold from online jewellers, official figures showed; meanwhile British consumer sentiment rose in October to its joint-highest level since August 2024.

Separately, business activity showed tentative signs of a recovery, the preliminary UK Composite Purchasing Managers’ Index published by S&P Global showed on Friday.

“We tend to be of the view that consumer confidence and retail sales, both of which were stronger today, are secondary or even tertiary indicators, to some extent,” said Dominic Bunning, head of G10 FX strategy at Nomura.

“We’re still looking for some underperformance (in the pound), in general,” Bunning added, citing the recent weak labour market report and inflation figures.

Investor expectations for BoE rate cuts have swung around this week, although markets still see a greater chance of a cut this year than the central bank keeping rates unchanged.

Markets had earlier this week raised their bets on further BoE easing in 2025 after British inflation unexpectedly held steady, coming in below expectations from a Reuters poll of economists and the central bank itself.

Futures markets now imply about a 65 percent chance of a quarter-point rate cut from the BoE by the end of the year, although that is down slightly from around a 75 percent chance before Friday’s data.

“Markets have rightly priced in a greater degree of easing from the central bank after softer-than-expected inflation and rumours of a more disinflationary Budget than previously expected,” said Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics.

“But the growth picture still suggests that the neutral rate is high and that rates are only modestly restrictive.”