Image source: Arthur McDaughtry - Shutterstock

What's going on?

Fresh data out on Friday showed UK retail sales fell at their fastest rate since January, which isn’t exactly how this whole “recovery” thing is supposed to go…

What does this mean?

The amount of goods sold both online and in-store fell by 2.5% in July from the month before – a far cry from the 0.2% increase that economists had been expecting. That might not sit well with the Bank of England, which had been hoping the lifting of leftover pandemic-related restrictions in July would unleash a flood of pent-up demand. Then again, maybe it’ll stand by its earlier optimism: some analysts think demand is still very much there given how much UK households have saved over the last year, and they’re confident it’ll keep driving growth in the next few months.

Why should I care?

For markets: Good news, bad news.

Around 60% of the UK economy is driven by “household consumption”, so the worry is that these disappointing retail figures will lead to weaker-than-expected economic growth this quarter. On the other hand, it probably vindicates the Bank of England’s decision to ignore the recent spike in inflation and keep its economic support program going. If shoppers aren’t turning up in their droves, after all, there’ll be less pressure on manufacturers and sellers to quickly and dramatically increase their prices.

The bigger picture: Morrisons is too popular.

The bidding war over British grocery store chain Morrisons escalated last week, with private equity firm CD&R raising its offer for the supermarket chain to $9.5 billion (and eclipsing Fortress Group’s $8.7 billion bid in the process) [tweet this]. That helped push Morrisons’ stock up 4% on Friday, potentially having reassured investors that there is an appetite for retail firms despite the shaky data. And it’s easy enough to see why: the pandemic has given the grocery sector as a whole a new lease of life, and Morrisons comes with the added benefit of an extensive real estate portfolio.

Originally posted as part of the Finimize daily email.

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