Economic Monitor: Consumer Confidence Experiences Hiccup

"Overall economic growth is expected to plateau over the final quarter of 2023. Despite signs of a cooling labour market in higher unemployment and falling demand for workers, consumption continues to hold up and services activity even managed to expand in the run-up to the final quarter.

Early survey evidence suggests consumer demand is weakening, and this is visible also in retail sales, with volumes showing slight declines relative to a year ago. Input costs remain high, and upward pressure is being placed on these costs due to strong oil price growth in recent months, alongside persistently high wage growth in the wholesale and retail sector.

At their meeting yesterday, the Bank of England voted to keep interest rates unchanged at 5.25%, stressing that no cuts are on the table until inflation returns to the 2% target. Only up to a third of the cumulative impact of interest rate hikes has taken place, implying two-thirds of tightening is still to be felt. The impact on household and business balance sheets is thus still in progress, and the refinancing of mortgage as well as corporate debt will take place in a staggered manner, between now and 2025. This points to a stagnant economic outlook over the coming quarters with heightened geopolitical tensions in the Middle East increasing the risk of stickier inflation in the near term."

• GDP grew in August by 0.2%, following a fall of 0.6% in July. Services activity grew and the largest upward contributors were professional scientific and technical activities as well as education, performing marginally better. Consumer-facing services, in contrast, fell on the month, with the biggest pulldown coming from sports activities and amusement and recreation activities. 
• Inflation remained unchanged in September and the Consumer Price Index stuck at 6.7%. Of the headline rate, 1.1% emanates from housing and energy costs, 1.4% from food and 1.1% from restaurants and hotels. Fuel prices rose for both petrol and diesel, with these figures registered when petrol was £1.54 per litre and diesel £1.67. Inflation is forecast by the Bank of England to average 4.6% over Q4 2023.
• The BRC-KPMG measure of retail sales slowed to 2.7% in September, down from 4.1% in August.
• Average regular pay (excluding bonuses) was estimated at £619 per week in nominal terms (not adjusted for inflation), higher than the estimate for a year earlier (£575 per week) and £480 per week in real terms (constant 2015 prices), higher than the estimate for a year earlier (£474 per week).