TD Securities expects UK retail sales volumes to rise 0.1% month-on-month in March, compared with a market forecast of 0.0%. February fell -0.4% month-on-month, following January’s discount-led increase.
The March increase is linked to less distortion from promotions, rather than a change in underlying demand. Online and non-store retail may add support, while food and supermarket sales may weigh on the total.
Retail Sales Outlook
Weather effects on household goods are expected to ease as March brought warmer days and less rain. The expected rise is described as modest, in a period after the start of the Middle East conflict.
UK private sector activity rose in April, based on PMI readings for manufacturing and services. Manufacturing increased to 53.6 (TDS: 50.5; market: 50.3; prior: 51.0), while services rose to 52.0 (TDS/market: 50.0; prior: 50.5).
The manufacturing gain was linked to earlier ordering and stock-building amid higher raw material prices and supply chain concerns. The services reading was linked to technology spending and marketing activity, while demand and expectations were pressured by faster input cost inflation, global uncertainty, and higher transport costs.
We see a modest rise in retail sales, but this feels more like a return to normal after January’s sales events, not a sign of strong consumer demand. Online sales are helping, but food sales are still weak, which keeps a lid on any real growth. This suggests that betting on a significant rally in consumer-focused stocks may be premature.
Market Risks And Positioning
The rebound in UK business activity this April, with the manufacturing PMI hitting a recent high of 53.6, looks good on the surface. However, we believe this is driven by companies stockpiling materials due to fears of rising prices and supply chain problems, not by a surge in actual customer orders. This kind of activity is not sustainable and could reverse quickly in the coming weeks.
The main threat we see is the sharp acceleration in costs for fuel and raw materials, pushing recent UK inflation figures to 3.5%, well above the Bank of England’s target. This inflation pressure, combined with global uncertainty, is making businesses nervous and could force the Bank to keep interest rates higher for longer. This situation creates a challenging environment for corporate earnings and equity markets.
Looking back, this setup has echoes of the volatility we saw in 2025 when early signs of recovery were quickly erased by unexpected global supply shocks. Given the current geopolitical tensions, we should be prepared for a similar outcome where positive data can be misleading. Therefore, relying solely on these PMI figures to go long on the market feels risky.
In response, traders should consider buying protection against a potential market downturn. Purchasing put options on the FTSE 250 index could be a prudent way to hedge against the risk that this economic momentum falters. With implied volatility still relatively low, the cost of this insurance is not yet prohibitive.
For currency traders, the stubbornly high inflation puts the British Pound in a precarious position. The uncertainty around the Bank of England’s next move could lead to significant price swings in currency pairs like GBP/USD. Options strategies that profit from increased volatility, such as a long straddle, might be appropriate for navigating the choppy weeks ahead.
