Sterling jumped to its highest level in a month on Thursday following the release of February retail sales data indicating that a sharp uptick in inflation has not yet crushed the U.K. consumer.
The British currency pierced the $1.25 mark minutes after the data was released at 09:30 London time, retracing to trade slightly below that level by the end of the morning.
February retail sales in the U.K. came in 1.4 percent higher for the month, thumping consensus expectations for a 0.4 percent lift and bumping up the annual growth rate to 3.7 percent from a mere 1 percent last month.
Yet, the underlying strength of the numbers remained in question for Paul Hollingsworth, U.K. economist at Capital Economics, who noted that given three consecutive months of dropping sales volumes, a rebound this month had been eminently likely.
"What's more, it would take a very large monthly rise of over 3 percent in March to prevent sales volumes from actually falling on a quarterly basis in Q1, after a strong 1.2 percent quarterly rise in Q4," he explained.
"Indeed, with annual growth in the retail sales deflator picking up from 1.9 percent in January to 2.8 percent in February, it is unlikely that we will return to the strong rates of sales volumes growth seen in the second half of last year any time soon," he added, noting that the deflator reflected the fastest rate of inflation since March 2012.