What's going on?

Stores in Britain sold fewer goods than expected in January � which suggests that rising inflation (the rate at which prices increase) in Britain may be having an impact on people�s wallets.

What does this mean?

After months of surprisingly strong sales following last June�s Brexit vote, retail sales (i.e. goods sold in stores) in January fell for the second consecutive month. However, this doesn�t necessarily reflect wider economic trends: �high street� stores (what Americans would call �brick and mortar� retail) are suffering due to factors like a shift to ecommerce and a shift in people�s spending priorities from goods to experiences.


Also, it�s only two months of data � more time is needed to draw firm conclusions. Nevertheless, it gels with data from Visa, the credit card company, that showed spending on UK credit cards in January grew at its slowest pace in five months.

Why should I care?

For you personally: People�s wallets may start getting lighter. (tweet this)

Inflation in the UK hit a 2.5-year high in January, while wage growth declined � which means the amount of money people have left in their wallets, after paying for basic living expenses, isn�t growing as much as it used to. Similarly, in the US, so-called �real incomes� have flatlined. This, logically, can lead to a decline in consumer spending growth � one of the most important parts of the economy on both sides of the Atlantic.


For markets: Following this news, the pound fell almost 1% versus the dollar.

If UK economic growth begins to slow materially, it is less likely that Britain�s central bank will decide to raise its target interest rate (because by making it more expensive to borrow, and thus spend, the central bank would create a headwind for the economy). Therefore, investors took Friday�s news as a signal that higher interest rates in the UK are less likely. That hurt the value of the pound because international investors generally move money to countries where they get a higher return (e.g. where interest rates are higher; click here for a more in-depth explanation).