Serving Up Growth

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What's going on?

According to data released on Monday, the UK economy grew at its fastest pace in a year – largely thanks to the services sector (things like retail, health and recreation). Party!

What does this mean?

Between May and July, the UK’s economy grew 0.6% more than the three months prior – and at the top end of forecasts. Though traditional workhorses like manufacturing and industrial production declined compared to last quarter, this was more than offset by growth in the services sector – which accounts for just under 80% of the British economy. Retail, specifically, got a boost from the European heatwave – perhaps as warm weather encouraged shoppers onto the high streets – and the World Cup (“it’s [not] coming home”).

Why should I care?

For markets: Swear I knew it all along.

This growth vindicates the Bank of England (BoE)’s decision to increase interest rates last month. The BoE cited the British economy being pretty close to full pelt in its decision – which could lead to higher prices for goods and services (a.k.a. inflation) – and said slower growth earlier in the year was down to the weather rather than reflecting an economic trend. The BoE will tell investors its latest thinking on Thursday, but it’s expected to leave rates unchanged for now – though further increases may be on the way in the coming months.

The bigger picture: Some green shoots, but not enough.

While the warm weather boosted the economy somewhat, the sun didn’t shine everywhere. High-street department store, Debenhams, saw its shares fall by 16% on Monday. The company’s hired advisors to help find ways to cure its ailments (it’s already sliced its profit expectations three times this year). Possible treatments include store closures, a strategy overhaul, or restructuring debt payments to be more affordable. Fellow department store, House of Fraser, was recently bought by Sports Direct (which also owns just under 30% of Debenhams)…

Originally posted as part of the Finimize daily email.

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