UK shop
UK shop price deflation accelerates in February sending pound lower Reuters

The sterling dropped on 4 March as shop price data compiled by the British Retail Consortium showed that deflation continued for the 22nd straight month in February.

The GBP/USD traded as low as 1.5343, its lowest since 11 February on a closing basis, and further distancing from the near two-month high of 1.5554 touched on 26 February.

Overall shop prices reported deflation accelerating to 1.7% in February from 1.3% in January, with non-food deflation rising to 2.5% from 1.8%, the BRC said.

"Those shoppers enjoying the January sales could continue into February with great bargains on the High Street, especially for clothing. It was also worth a visit to the local DIY store or updating some house furniture with good promotions found in both categories," said Helen Dickinson, the BRC director general.

According to the surveyors, the fiercely competitive market in the UK will see retailers continuously responding to their customers with prices and promotions to maintain market share.

The market is now waiting for the UK services PMI data due at 9.30 GMT. The index is forecast to have risen to 57.5 for February from 57.2 at the start of the year.

That said, the focus this week is on the Bank of England rate decision on Thursday. The market is not expecting a change in the bank rate of 0.5% or the asset price target of £375bn but increasing deflation concerns could impact the decision, many believe.