Pound jumps on surprisingly strong retail sales

LONDON (Reuters) - Sterling initially jumped and short sterling fell on Thursday after a surprising rise in retail sales suggested that consumer demand remains firm even as the economy continues to deteriorate.

The Office for National Statistics said sales rose by 0.8 percent last month, wrongfooting analysts who had forecast a 0.3 percent decline. That left sales 2.1 percent higher on the year, the lowest rate since February 2006.

Sterling rose to a session high of $1.8704, from $1.8652 just before the announcement. It later pulled back to $1.8664 at 9:3.5 a.m., but remained up 0.3 percent on the day.

Short sterling contracts fell into the red having traded higher before the data was released. The September long gilt future shed gains, but held in positive territory, up 14 ticks at 109.44.

“The data are stronger than expected and so you’re getting the reaction that would you anticipate on the result of that,” said Geraldine Concagh, economist, at AIB Group Treasury in Dublin.

The FTSE 100 was little impacted after the data, trading 0.8 percent lower as of 9:32 a.m.

Reporting by London Markets Team