News

The sharp rebound in both BRC and Barclays data will offer some near-term relief for UK consumer sentiment readings, but the underlying picture remains cautious. Spending growth of 0.8% annually remains well below the 3% inflation rate, meaning real consumer purchasing power is still being eroded. The third consecutive monthly decline in travel and the 12.9% drop in airline spending are the starkest signals that geopolitical anxiety around the Iran conflict is actively shaping household behaviour beyond the retail sector. For Bank of England watchers, the mix of recovering retail volumes but persistent real-terms weakness and travel caution keeps the policy outlook finely balanced.

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UK retail sales jumped 3.7% year-on-year in May, the biggest rise since April 2025, driven by heatwave demand, though travel spending fell for a third straight month on Iran war caution.

Summary:

• BRC total retail sales rose 3.7% year-on-year in May, reversing a 3.0% decline in April and marking the strongest annual increase since April 2025
• BRC like-for-like sales gained 3.4% year-on-year versus a 3.4% fall in April, also the best reading since April 2025
• Barclays consumer spending rose 0.8% annually in May, up from a 0.1% decline in April, though still running well below the roughly 3% inflation rate
• Heatwave conditions and the early May bank holiday boosted food and drink, clothing, footwear, health and beauty, and outdoor goods across both surveys
• Travel spending fell 5.8% for a third consecutive month, with airline expenditure down 12.9% year-on-year; two in three Barclays respondents said they were making financial adjustments in response to economic uncertainty
• BRC chief executive Helen Dickinson credited the May heatwave with driving a surge in outdoor and summer goods, with food sales lifted by bank holiday barbecue demand

British consumers increased their spending sharply in May, snapping a run of weakness in April, though persistent caution over the economic fallout from the Iran conflict continued to suppress travel expenditure for a third consecutive month.

The British Retail Consortium reported total retail sales growth of 3.7% year-on-year in May, the strongest annual increase since April 2025 and a decisive reversal from a 3.0% decline the previous month. Like-for-like sales rose 3.4%, compared with a 3.4% fall in April, also the best reading in over a year. Food sales advanced 3.9% and non-food 3.5%.

BRC chief executive Helen Dickinson attributed much of the improvement to May's heatwave, which triggered strong demand for summer clothing, footwear, outdoor equipment, fans and lighter bedding, while bank holiday barbecues provided an additional lift to food sales.

Barclays reported consumer spending up 0.8% in annual terms for the period covering late April to late May, a recovery from a 0.1% contraction in April. However, that figure remains well below inflation running at around 3%, pointing to continued real-terms pressure on household budgets.

The most persistent weak spot is travel. Barclays recorded a 5.8% annual fall in travel spending, with airline expenditure down 12.9%, as consumers pulled back on overseas plans. Two thirds of respondents said they were actively adjusting their finances in response to broader economic uncertainty.

• On Iran blockade says anything that is taken off will be taken off slowly
• There are 3 scenarios on Iran: deal, no deal, or kinetic action
• There's more we can do on Iran if we have to
• See real wage growth to resume, on the other side of the war
• 100% approve of the Fed getting rid of forward guidance
• Rates peaked the day before Warsh was sworn in
• People have a wrong notion of what a strong dollar means
• A strong dollar means doing the right things for the economy
• When asked about maintaining the dollar as a reserve currency he said nothing has changed

US Treasury Secretary Scott Bessent said the administration remains committed to pursuing a diplomatic resolution with Iran but warned that alternative options remain on the table if negotiations fail, while also offering a robust defense of the Federal Reserve's evolving policy framework and the long-term strength of the US dollar.

Speaking about ongoing discussions with Iran, Bessent indicated that any easing of restrictions related to the US naval blockade would be implemented gradually rather than all at once.

He outlined what he described as three possible paths forward for the standoff with Iran: a negotiated agreement, a failure to reach a deal, or military action.

While emphasizing the administration's preference for diplomacy, Bessent stressed that the US retains additional tools if negotiations break down.

On the domestic economy, Bessent struck an optimistic tone, arguing that real wage growth could strengthen once the current geopolitical conflict subsides and uncertainty begins to fade.

Bessent also weighed in on monetary policy, offering strong support for the Federal Reserve's decision to move away from explicit forward guidance as a central communication tool.

The comments reflect a growing view among some policymakers that excessive reliance on pre-signaled policy paths can reduce flexibility and create market distortions when economic conditions change unexpectedly. Bessent suggested that a more data-dependent approach allows policymakers to respond more effectively to evolving economic circumstances.

Turning to the dollar, Bessent rejected what he described as common misconceptions about currency strength. Rather than focusing solely on the exchange rate, Bessent argued that a strong dollar should be understood as the product of sound economic policy, sustainable growth, and confidence in US institutions.

His remarks come amid ongoing debate over whether a stronger or weaker currency better serves US economic interests. Bessent's comments suggest the administration continues to view the dollar's strength as a reflection of broader economic fundamentals rather than a specific exchange-rate target.

When asked about maintaining the dollar's status as the world's primary reserve currency, Bessent sought to reassure markets that there had been no change in policy.

The statement is likely aimed at reinforcing confidence in the dollar's central role in global finance at a time when some geopolitical rivals have sought to reduce their dependence on the US currency for international trade and reserves.

All is not quiet in Iran, loud explosions reported via multiple media sources. Cause unknown.

Markets are focused on the good news out of negotiations right now. Nevertheless, conflict continues.

Daily Pivots: (S1) 1.1603; (P) 1.1637; (R1) 1.1658; More…. Intraday bias in EUR/USD is turned neutral with current recovery, and some consolidations could be seen above 1.1607 temporary low. Risk will stay on the downside as long as 55 4H EMA (now at 1.1700) holds. Rebound from 1.1408 could have completed as a corrective three-wave […]

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Japan March household spending data for March is poor.

Fell 2.9% y/y

• expected -1.5%, prior -1.8%

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