15 days ago • 2 mins
What’s going on here?
UK retail sales dropped to their lowest in two years, an ominous sign worth watching ahead of the usually lucrative festive season.
What does this mean?
Economists had expected retail sales in the UK to tick up by 0.3% from the month before, presumably partly made up of carve-ready pumpkins and multipacks of sugary treats. But Brits were clearly playing it safe with their spending: sales dropped 0.3% instead, landing nearly 3% below last October’s level. That’s all down to a toxic combination of higher prices and low financial confidence. Case in point: budget-conscious Brits bought 3.1% fewer goods than the pre-pandemic control month of February 2020, yet they spent nearly 17% more. When a shopping trip is that unsatisfying, it’s hardly worth braving the winter weather. And that doesn’t bode well for the holiday season, usually retailers’ most wonderful time of the year.
Why should I care?
For markets: At least someone’s happy.
The UK’s sluggish economy could be a cause for celebration for bond investors. See, the worse the economy is, the more likely a central bank is to cut rates. And because bond prices and interest rates move in opposite directions, lower rates would increase the value of bonds. Investors will be watching Britain’s stats closely, then: if inflation keeps moving in the right direction and the economy continues to falter, the Bank of England (BoE) may be able to lay off the high rates.
The bigger picture: Softly, softly.
The BoE could nail the elusive “soft landing” by pulling inflation back to target without triggering a recession. So far, so good: inflation’s inching down and the economy isn’t free-falling – yet. But that retail data shows that rate hikes have just started denting on the economy, and because their impact only shows after some time, it’s impossible to rule out an economic spiral.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.