European session review: GBP depreciates after mixed economic data

GBP weakened against its major rivals in the European session on Friday as a surge in the UK's public debt outweighed a stronger-than-expected recovery in retail sales. 

The Office for National Statistics (ONS) reported that retail sales in the UK climbed 12 percent m/m in May, the most on record, recovering from a record 18 percent m/m  plunge in April. Economists had forecast a 5.7 percent m/m advance. Non-food stores provided the largest positive contribution to the monthly growth in May, aided by a jump of 42.0 percent in household goods sales. Still, compared with the same month last year, retail sales were down 13.1 percent.

Meanwhile, another report from ONS revealed that the UK's public sector net debt excluding public sector banks (PSND ex) was 100.9 percent of GDP, the first time that debt as a percentage of GDP has exceeded 100 percent since the financial year ending March 1963. PSND ex at the end of May was GBP1,950.1 billion, an increase of GBP173.2 billion (or 20.5 percentage points) compared with May 2019, the largest y/y gain in debt as a percentage of GDP on record. At the same time, public sector net borrowing excluding public sector banks (PSNB ex) totaled GBP55.2 billion in May, roughly nine times or GBP49.6 billion more than in May 2019. This was the highest borrowing in any month on record since 1993. The ONS stressed that the COVID-19 pandemic continues to have a significant impact on the UK public sector finances.

The risk of the UK leaving the EU with no trade deal also continued to weigh on sterling. British PM Boris Johnson told French President Emmanuel Macron on Thursday that he saw no need for the post-Brexit trade talks to drag on until the Autumn.