Misery for Rachel Reeves as pound slumps after 'disappointingly small' retail sales rise

The pound slumped against major currencies on Friday after UK retail sales data came in below expectations, piling pressure on Chancellor Rachel Reeves as concerns mount over the health of the economy. As of 2.30pm, sterling was valued at 1.145 euros - down more than two cents since the start of trading.

It was also hovering around $1.34 - down 2.5 cents. According to figures from the Office for National Statistics (ONS), retail sales rose by 0.9% in June, well below forecasts of a 1.2% rebound.

The modest uptick followed a sharp 2.7% drop in May, and year-on-year growth was also weaker than expected at 1.7% compared to a 1.8% forecast, reported fxstreet.com

Analysts described the figures as "disappointingly small" and warned they showed limited consumer appetite despite recent wage growth and cooling inflation.

The data weighed heavily on the pound, which dropped against the dollar, euro, and yen as investors digested signs of a sluggish recovery in household spending.

While there was some strength in automotive fuel and department store purchases, other non-food retail categories suffered steep declines, dragging the overall figure lower.

Adding to the pressure, business activity data released on Thursday revealed further signs of a slowdown.

The UK's S&P Global Composite PMI slipped to 51.0 in July, down from 52.0 in June and below market forecasts of 51.9.

That reading, which still indicates slight expansion, pointed to softer demand across both manufacturing and services and a cooling jobs market.

Ms Reeves has faced rising expectations to steer Britain's fragile recovery without risking inflation or further fiscal slippage.

However, the latest data have fuelled concerns that the economy is losing momentum heading into the second half of the year, limiting her room to manoeuvre.

One potential bright spot came in the form of a new UK-India Free Trade Agreement, signed Thursday and praised by Prime Minister Sir Keir Starmer.

He said the deal would boost access for UK businesses in sectors such as alcohol, textiles, and cars.

However, economists warned that such benefits would take time to filter through and were unlikely to provide immediate support for sterling.

Attention now turns to the Bank of England's next interest rate decision in August.

With weak data stacking up, some analysts believe the case for a rate cut is growing stronger-a move that could further undermine the pound if markets interpret it as a sign of economic fragility.

On Thursday, Lloyds' boss warned Rachel Reeves against raising bank taxes in her autumn Budget, saying it would be at odds with the Government's plans to drive economic growth.

Charlie Nunn's remarks came as the banking giant revealed its earnings beat expectations for the first half of 2025, with both customer lending and savings balances growing.

He said: "We already have the highest tax regime on the financial services sector of any major economy... we're completely comfortable with that.

"But it is important when you look at the competitiveness of the City of London and the financial services sector that we remain a competitive tax regime."