What's going on?

British stocks had a rough day on Thursday following some downbeat economic data and a statement from the UK�s central bank suggesting that it may begin to withdraw its support for the economy sooner than had been expected.

What does this mean?

First up was data showing that retail sales grew at their slowest rate in four years in May. Ouch. The decline in UK wages, after factoring in inflation, probably had something to do with it, as people can�t afford to buy as much stuff as they used to.

Meanwhile, the Bank of England voted to keep its target interest rate unchanged on Tuesday � which was fully expected. However, a surprising number of Bank of England officials voted to increase the interest rate. They�re worried that inflation is getting too high, and that the economy needs to face a bit of a headwind (i.e. higher interest rates) to pare back the supposedly unhealthy increase in prices. Although nothing has changed for the moment, it has brought forward investors� expectations for when an interest rate increase will occur.

Why should I care?

For markets: UK-focused stocks fared the worst.

There are a lot of big companies that are based in Britain but do most of their business in other countries (like miners and pharmaceutical companies) � and so the ups and downs of the British economy don�t affect them much. However, a collection of Britain�s mid-sized companies (most of whom are domestically focused) saw their stock prices fall 2%, their worst day so far this year.

The bigger picture: Britain�s economy held up well after the Brexit vote, but that now seems to be changing.

The country�s new �hung� parliament increases political uncertainty, which tends to dampen spending from companies and consumers. Meanwhile, inflation is at its highest in four years � and more expensive stuff also tends to hurt spending. And now we learn that the central bank is signaling that it might stop being so supportive. The Brits are going to need their stiff upper lip…