The UK Composite PMI rose to 53.9 in January, up from 51.4 in December, exceeding the predicted 51.7. Business activity showed strong growth, with the Services PMI increasing to 54.3 and the Manufacturing PMI jumping to 51.6 from 50.6. The Pound Sterling reacted positively to the PMI data, leading GBP/USD to rise near 1.3520. The Pound was strongest against the New Zealand Dollar, indicating a favorable trend in the currency market.

UK Retail Sales Overview

UK Retail Sales increased by 0.4% month-on-month in December, instead of the expected drop of 0.1%. Core Retail Sales also rose by 0.3%, improving from a revised decline of 0.4%. Yearly, Retail Sales have grown by 2.5%, while core sales increased by 3.1%. The GBP/USD pair experienced some ups and downs due to risk aversion and geopolitical tensions. Despite the positive retail data, the pair’s movement is still shaped by expected actions from the Bank of England and potential weaknesses in the US Dollar. The S&P Global Composite PMI is an important UK indicator that measures business activity in the private sector. It looks at changes in output in manufacturing and services, reflecting broader economic trends like GDP and inflation. A PMI reading above 50 indicates economic growth, while a reading below 50 suggests contraction. The preliminary PMI data for January was a huge surprise, showing that the UK economy is growing faster than expected. The composite reading of 53.9 significantly surpassed the forecast, indicating strong growth in both services and manufacturing. This challenges the cautious outlook we had at the start of the year.

Effects on Bank of England Policy

This strong economic activity will likely lead to a re-assessment of the Bank of England’s (BoE) monetary policy. Expectations for upcoming interest rate cuts must now be reconsidered, as this data implies that inflationary pressures might continue. We recall how inflation remained above 3% during late 2025 despite previous rate hikes. Given this new insight, now might be the time to plan for further strength in the Pound Sterling. Consider buying call options on GBP/USD, possibly with a March expiry and a strike price around 1.3600, to profit from this potential upward trend. The immediate rise in currency shows that the market is already starting to anticipate a more aggressive stance from the BoE. Implied volatility has also increased following the surprising data release. The BPVIX, the Sterling volatility index, rose from 7.5 to 8.1 within an hour after the announcement, indicating higher uncertainty and demand for options. This suggests that option premiums will likely be higher in the coming weeks, which we should factor into our strategies. Examining currency pairs, the data revealed that the Pound was strongest against the New Zealand Dollar. This situation presents an opportunity, possibly through long GBP/NZD futures contracts or options. New Zealand’s economic data from the fourth quarter of 2025 was relatively weak, making this a smart relative value trade based on differing economic fundamentals. Create your live VT Markets account and start trading now.

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