HSBC has revised its forecast for the Bank of England’s (BOE) terminal rate to 5.25%. The firm now predicts that the BOE will raise interest rates not only in June but also in August and September. Moreover, the projected peak for the BOE rates has been adjusted higher to 5.34%.

This revision in HSBC’s forecast highlights the significant impact of a single data point, such as the consumerinflation relesed earier this month, with headline CPI cooling off but cuming above expectations, while core CPI increased instead. On Friday, the UK retail sales for March showed a decent bounce, which helped the case for further BOE hikes.

Following the BOE’s policy decision earlier this month, there were still uncertainties surrounding the possibility of rates reaching a peak of 5.00% in the coming months. However, the latest data suggests that it is now highly likely, with the markets even fully pricing in an additional 25 basis points increase.

UK April Retail Sales Released by ONS – 26 May 2023

• April retail sales MoM +0.5% vs +0.3% expected
• March retail sales -0.9%; revised to -1.2%
• Retail sales YoY -3.0% vs -2.8% expected
• Prior retail sales YoY -3.1%; revised to -3.9%
• Retail sales (ex autos, fuel) MoM +0.8% vs +0.3% expected
• Prior core sales MoM -1.0%; revised to -1.4%
• Retail sales (ex autos, fuel) YoY -2.6% vs -2.8% expected
• Prior core sales YoY -3.2%; revised to -4.0%

That’s a minor beat but take note that it comes after a softer revision to the March numbers. Looking at the breakdown:

• Non-food stores +1.0% MoM (-1.8% prior)
• Food stores +0.7% MoM (-0.8% prior)
• Non-store retailing +0.2% MoM (-1.4% prior)
• Automotive fuel sales -2.2% MoM (+0.1% prior)

It’s a welcome development but the fact that food stores’ sales volumes are still down by 2.7% relative to their pre-pandemic levels i.e. February 2020, it does highlight the softness in spending. And when you throw in price increases and the impact of inflation, you can see why as per below.

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