RismadarVoice Reporters
September 18, 2026
The British pound edged higher on Friday after stronger-than-expected retail sales reinforced signs of resilience in the United Kingdom economy and increased market expectations that the Bank of England could raise interest rates in the coming months.
UK retail sales volumes increased 0.5 per cent in August from July, defying economists’ expectations of a 0.2 per cent decline. Compared with August 2025, sales volumes were 2.4 per cent higher.
Sterling gained slightly following the figures and was trading about 0.1 per cent higher at $1.337. Against the euro, the pound was broadly unchanged, with the European currency trading around 85.91 pence.
Capital Economics Chief UK Economist Paul Dales said the economy’s resilience was another factor pushing the Bank of England closer to raising borrowing costs, although persistent inflation could weaken economic growth later in the year.
RATE-HIKE EXPECTATIONS INCREASE
The stronger retail figures came a day after the Bank of England left its benchmark interest rate unchanged at 3.75 per cent.
The central bank, however, warned that inflation could rise above 4 per cent early in 2027 and indicated that borrowing costs may have to increase if energy-price pressures linked to the Iran conflict persist.
Recent economic data have also strengthened expectations of further monetary tightening. UK economic output expanded in July at its fastest annual pace in 18 months, prompting Bank of England officials to raise their forecast for third-quarter growth.
Money markets were pricing roughly a 65 per cent probability of an interest-rate increase in November, while traders anticipated around four quarter-percentage-point increases by the end of 2027.
POUND STILL HEADED FOR WEEKLY LOSS
Despite Friday’s modest recovery, sterling remained on course for its largest weekly decline since June, having fallen about 1.2 per cent over the week.
The currency came under pressure after the United States Federal Reserve raised interest rates on Wednesday and signalled that additional increases could follow, strengthening the dollar against major currencies.
Sterling fell about 0.7 per cent on Wednesday as the dollar rallied.
Higher energy prices linked to the Iran conflict have also pushed investors to increase expectations for interest-rate rises across several major economies.
The resulting increase in government bond yields has been widespread, limiting the impact on individual currencies because borrowing-cost expectations have moved higher across multiple markets.
For the UK, Friday’s retail sales figures add to evidence of stronger economic activity, but the outlook remains closely tied to inflation and energy prices as investors assess whether the Bank of England will move from holding rates to another round of monetary tightening.
