The British pound came under aggressive selling pressure following the sharpest drop in UK retail sales in 22 months. Slower global growth, a deteriorating labor market and rising prices is taking a big toll on consumer spending. This will have a big affect on UK businesses and GDP growth in the second quarter. The advance release is due out tomorrow and based upon today’s retail sales number, GDP growth won’t be pretty. Despite the hawkish tone of the Bank of England minutes, there is no way that the BoE will risk raising interest rates in the near future. In today’s UK Telegraph, there is an article about how the Bank of England has room to cut interest rates. According to a key Treasury Adviser, the neutral level of interest rates is now below 5 percent. If the UK economy continues to deteriorate, as widely expected, the pressure on the Bank of England to cut interest rates will grow, especially if oil prices remain at current levels.
