• The Pound Sterling outperforms its major peers as UK Retail Sales grew at a faster-than-expected pace in August
• Fears of UK inflation remaining persistent have deepened after an acceleration in price pressures coming from the services sector.
• The Fed is expected to continue an aggressive policy-easing cycle.

The Pound Sterling (GBP) performs strongly against its major peers on Friday. The British currency strengthens as the United Kingdom (UK) Retail Sales data for August came in stronger than expected. The Retail Sales data, a key measure of consumer spending, rose at a robust pace of 2.5% on year, higher than the estimates of 1.4% and July’s print of 1.5%. On month, Retail Sales grew by 1% against expectations of 0.4% and the 0.5% advance registered in July.

The report showed that households spent heavily on textile clothing and footwear stores and food stores, while sales receipts at other non-food stores declined. Signs of robust demand for durable items could further fuel price pressures, a potential concern after core inflation already came in hotter-than-expected in August. The persistence of high price growth in certain parts of the economy guided the Bank of England (BoE) to leave interest rates unchanged at 5% in Thursday’s policy meeting.

The BoE kept its borrowing rates steady, with an 8-1 vote split. BoE external policy member Swati Dhingra was the only one among the Monetary Policy Committee who voted to cut interest rates by 25 basis points (bps) for the second time in a row. Investors were expecting that Deputy Governor Dave Ramsden would also vote for a cut, but he didn't.

Also, BoE members unanimously voted to trim their government bonds holdings by 100 billion pounds over the coming 12 months.