LONDON, May 24 — The pound eased today after data showed wet weather hit UK consumer spending far more than expected in April, but evidence of sticky inflation, and the surprise announcement this week of a July general election kept sterling near two-month highs.

Sales volumes dropped by 2.3 per cent in April after a 0.2 per cent fall in March, which was downwardly revised from a flat reading, the Office for National Statistics said.

The data was worse than any economist predicted in a Reuters poll, which had pointed to a drop of around 0.4 per cent on the month.

However, a separate measure of consumer sentiment on Friday showed confidence is at its highest since late 2021.

Sterling was last flat at US$1.2697 (RM5.98), having traded as high as US$1.2761 after Wednesday’s data showed UK inflation rose 2.3 per cent in April, above forecasts for a rise of 2.1 per cent, but still below March’s 3.2 per cent rate.

The euro held in modestly positive territory against the pound, at 85.21 pence.

Investors have slashed the chances of a June rate cut by the Bank of England to below 10 per cent, from around 50 per cent before Wednesday’s inflation data.

Two-year gilt yields, the most sensitive to shifts in expectations for the course of monetary policy, are heading for their largest weekly rise so far this year, as investors sold British government bonds.

“With sterling being catapulted to multi-month highs against both the dollar and the euro after a measly 0.2 per cent miss in inflation, I knew there was little steam in the engine from the start. The reaction was much too great than the reality justified,” Caxton strategist David Stritch said.

“However, the market is recovering from its knee-jerk reaction and the spike in gilt yields that followed and sterling is weakening as a result, although, sterling is showing remarkable resilience and has stemmed a fall towards its pre-inflation levels to simply plateau against its peers,” he said.

Wednesday’s data miss aside, headline inflation is falling. Last month’s rise in the national minimum wage, along with the fall in workers’ national insurance contributions and this month’s anticipated drop in energy bills have helped lift the mood among British consumers.

So far in May, sterling is up against most major currencies and heading for its best monthly performance since November against the dollar, with a gain of 1.6 per cent. — Reuters