UK Retail Sales Rise For Sixth Straight Month

UK Retail Sales Rise For Sixth Straight Month

Retailers in the UK posted another strong performance, rising for the sixth straight month and giving further indications that consumer sentiment is improving in a stable and steady manner.  A good portion of the stronger retail numbers have come from gains in the luxury items and fashion space, as rising wages and a relatively strong British Pound have spurred spending trends in more expensive consumer items.  Rising currency values tend to promote spending habits in key sectors of the market, and these trends have filtered into much better numbers in fashion and luxury items.  

When attempting to determine whether or not these trends are set to continue, it will be important to watch for changing activity in the Guggenheim CurrencyShares British ETF (FXB), which closely tracks the value of the currency against a basket of its global counterparts.  As long as we continue to see strength in the British Pound, we can expect consumer sentiment to remain elevated and spending habits (even in the high-end luxury space) continue to show positives in the monthly releases.

Trends in the British Pound

(Chart Source:  CornerTrader)

When looking at the likely trajectory of the British Pound, it is important to determine its relative strength against its most commonly traded currencies.  The Euro comes to mind when this type of topic is raised but it is a much better idea to monitor the Pound’s performance against the US Dollar, as this relationship offers a key determinant for the relative strength that will be seen in the market as a whole.  In the chart above, we can clearly see that the momentum here is situated in the positive direction, and we have not seen many periods of weakness this year.  

Trends in Fashion and Luxury

The second critical area to watch will be the fashion and luxury space, as activities here tend to be a major precursor for what is to be seen in the UK consumer space as a whole.  Strength here tends to filter into positives for other industry sectors, so as long as these high-end items meet consistent market demand, the broader outlook is encouraging.  “Market trends at the high-end fashion retailers have shown consistent improvements over the last few years,” said Jane Wyman at UK Models.  “At the moment, there is little to indicate that these trends will be ending any time soon.”  

Going forward, UK markets will need to see steady strength in all of these areas in order to maintain a positive outlook in the retail consumer space.  Six straight months of growth is encouraging and with most of the numbers point in the same direction we can expect fashion retailers to post additional improvements in corporate earnings.  It is important to watch the relative strength of the British Pound when assessing projections but as long as the luxury and high-end fashion space remains supportive, these types of positive reports should continue.