UK Grocers Gain Despite Economic Situation

British supermarkets witnessed strong sales growth in the first half of June, but policy officials, particularly at the BOE, are pessimistic and looking for easing options.

Looking for Green Shoots

Concerns about the situation in the Middle East are waning. Still, as renewed speculation of a Shell takeover of BP was dismissed and attention shifted to the economy. NielsenIQ's bi-monthly report on provided some data offering positive headlines, as it showed that British shoppers increased their spending in the first half of June by 3.8%. The gains were attributed to better weather and spending for Father's Day. M&S and Tesco were once again the leading gainers of the publicly listed firms (discounter Lidl saw the strongest sales increase), as a shift towards fresh and healthy foods suggested shoppers were more willing to spend.

A closer look at the patterns reported by Kantar, however, revealed that . Smaller, more frequent shopping carts implied bargain hunting, and with total volumes falling by 0.4%, the gains in sales seem more attributable to inflation than actual growth in consumer demand. Rising prices have been a drag on the British economy, as the government tries to shore up its finances. Prime Minister Keir Starmer spoke at the British Chamber of Commerce, attempting to rally economic growth after the industry group reported that as many as a third of small and medium-sized or were considering job cuts as a result of the new social security bills.

Taking Action Amid Uncertainty

BOE Governor Andrew Bailey spoke in the House of Lords this week, saying that he . He also admitted that the current monetary policy was restrictive, as high inflation has prevented the central bank from lowering rates. Typically, lower interest rates help the stock market at the detriment of its currency. However, even as Bailey reiterated that the path for rates was lower, the pound was at multi-year highs against the dollar, primarily due to weakness in the buck, as the BOE decided to hold rates unchanged in June despite expectations of a cut.

The strength in the pound may continue given recent expectations that during its next three meetings. However, remain persistent issues in the UK. The signs of precarious consumers and a slowing labour market do make it easier for BOE doves to argue for a rate cut and boost grocers higher. Nonetheless, markets still expect for the remainder of the year in August and November, which is less than in the US.

GBPUSD Leaves Behind Long-Term Pennant

Taking a long-term shot at the pound, the weekly chart shows a bullish breakout of a pennant near the upper ‘autotrend’ trendline of 1.3250 and last September’s peak at 1.3450. The next possible resistance lies at the upper VWAP near 1.3830, which exposes the 1.3900 and 1.4000 handles, leaving the pair at a breathing distance from the pennant's trough at 1.4250. The GBPUSD pair gained over 300 pips this week after bouncing off the 13450 swing, confirming support. However, a decline due to possible momentum exhaustion would bring the median VWAP of 1.3137 into focus, with the 1.3000 round level coming up next.

Source: SpreadEx / GBPUSD

Key Takeaways

UK grocers showed strong sales growth in early June, but beneath the surface, consumers remained cautious due to concerns about inflation. While M&S and Tesco benefited, the gains were likely inflated by rising prices rather than genuine demand growth, with the challenge acknowledged by Bailey. While the BOE is expected to ease rates by 50 bps, the UK still faces persistent issues of slowing wage growth and rising economic inactivity. However, the consumer situation and a slowing labour market could prompt further rate cuts, though pound strength may prevail given expectations of slightly more aggressive rate cuts by the Fed.