UK retail sales strengthened in June, with volumes rising 1 per cent month-on-month and 4.2 per cent annually, beating expectations. The GfK consumer confidence index jumped six points to minus 17 in July, the largest monthly gain since November 2023, while the S&P Global flash UK PMI composite output index climbed to a three-month high of 52.1.

Analysts attributed the bounce to sunshine, England's World Cup progress, a lull in Middle East tensions, and optimism around Andy Burnham's appointment as Labour leader and prime minister. Neil Bellamy at GfK cited a "sense of a fresh start," while Chris Williamson at S&P Global noted hospitality demand boosted by weather and football.

However, economists warned the optimism may be shortlived. Rob Wood at Pantheon Macroeconomics said the "Burnham boost will be tested by higher energy prices and tariff uncertainty" as the US-Iran conflict pushed oil toward $100 a barrel. Thomas Pugh at RSM UK warned of a "tougher backdrop" with increased risk of a rate hike.

The Bank of England is expected to hold rates at 3.75 per cent next week, encouraged by slowing wage growth and easing inflation, which fell to 2.6 per cent in June. Yet GDP growth has slowed to 0.1 per cent in May, and business surveys show weak hiring intentions, suggesting the confidence surge lacks solid economic momentum.