UK Spending Climbs, Sentiment Lifts but Inflation Lingers

As the UK heads toward mid-year, recent data reveals a mixed yet increasingly dynamic economic picture. Consumer confidence is on the rise, retail sales continue to strengthen, and the British pound is showing technical resilience—yet inflation remains a concern. In May, consumer sentiment improved notably, buoyed by optimism around personal finances and the broader economic outlook. April retail sales also surprised to the upside, led by a weather-driven boost in food store spending. Meanwhile, GBPUSD has rallied sharply from its January lows, testing key resistance levels. However, rising inflation—driven by energy and housing costs—adds complexity to the outlook, with policymakers and consumers alike navigating an evolving economic landscape.

UK Consumer Sentiment Lifts as Outlook Brightens in May

UK consumer confidence improved in May 2025, with GfK’s Consumer Confidence Index rising three points to -20. All five key indicators showed gains, driven by optimism about personal finances and the broader economy over the next 12 months. Notably, expectations for personal finances turned positive, climbing five points to +2, while the outlook for the general economy rose four points to -33. The major purchase index also improved, reaching its highest level since late 2024. While concerns about inflation and global trade tensions persist, the overall mood among UK consumers appears to be cautiously improving.

UK Retail Sales Rebound in April

Retail sales volumes in Great Britain rose by 1.2% in April 2025, marking the fourth consecutive monthly increase and the strongest monthly gain since the post-pandemic period. The rise was driven primarily by a strong rebound in food store sales, which retailers attributed to favorable weather conditions.

In the three months to April, sales volumes increased by 1.8% compared to the previous three-month period—the largest quarterly gain since July 2021. Year-on-year, sales volumes were up 5.0% and are now 0.3% above pre-pandemic levels, reaching their highest point since July 2022.

The data suggest a solid recovery in consumer spending, particularly in the food sector, despite a still uncertain economic backdrop.

Technical Price Targets

Since bouncing from the January low of 1.20987, triggered by a Hammer candlestick pattern and a series of higher peaks and troughs, GBPUSD has rallied over 11% from trough to peak. A decisive break above 1.34430 could open the path toward potential upside targets at 1.34681, 1.35944, and 1.39349. Conversely, a decisive break below the 1.31390 support may shift sentiment in favor of the bears, exposing downside targets at 1.30360, 1.29356, and 1.27073. Traders should watch for a directional breakout to gauge the next leg in price action.

UK Inflation Rises in April, Driven by Energy and Housing Costs

Inflation in the UK rose to 3.5% in April, surpassing expectations due to higher household bills, energy prices, airfares, and council tax. While the Bank of England had forecast a peak of 3.7% later this year, the sharper-than-expected rise adds pressure on policymakers. Chancellor Rachel Reeves acknowledged the challenges but defended current economic measures as necessary. Despite the jump, some relief came from falling fuel prices and lower clothing and footwear costs. Economists suggest the spike may be temporary, with inflation still expected to ease later in the year.

Conclusion

The UK economy is showing signs of resilience as consumer confidence rises, retail sales strengthen, and the pound gains traction—offering a cautiously optimistic outlook heading into mid-2025. However, the unexpected uptick in inflation underscores the delicate balance policymakers must strike between supporting growth and managing price pressures. While sentiment and spending trends suggest improving momentum, the path forward remains complex. Traders and analysts alike will be closely watching upcoming data releases and policy signals to assess whether the current recovery can sustain its pace amid ongoing inflationary and global economic challenges.