Economic Monitor: Consumer Confidence Improves in Run Up to Christmas

Services activity expanded last month, according to the Purchasing Manager’s Index, indicating economic activity may have marginally expanded over November. Consumer confidence had experienced a hiccup in October but demonstrated resilience with consumers feeling more optimistic about the state of their personal finances, ahead of the festive season.

Nonetheless, consumer spending remains under pressure from elevated rates of inflation, and whilst retail sales in pound sterling terms grew in October, the physical quantities bought (sale volumes) fell slightly. However, still-high wage growth and easing inflation offers a tailwind for consumption over this month, having the potential to prop up spending.

Interest rates will remain above 5% into 2024, and inflationary persistence is appearing more likely as businesses report the pass-through of costs stemming from higher wage bills and elevated domestic transportation costs. With the bulk of the cumulative impact of interest rate hikes yet to make their impact, business and household balance sheets will remain under stress, suggesting limited opportunity for economic expansion over the coming quarters.

• GDP grew in September by 0.2%, following downwardly revised growth of 0.1% in August. Services activity rose and the largest upward contributors were professional, scientific and technical activities as well as human health and social work. Consumer-facing services, in contrast, fell on the month for a second consecutive period, with the biggest pulldown coming from retail trade, in addition to travel agencies and tour operators.
• Inflation fell in October and the Consumer Price Index stuck at 4.6%. Of the headline rate, 1.4% emanates from food, 1.0% from restaurants and hotels and 0.9% from recreation and culture. Housing and energy costs are now pushing down on inflation, shaving off 0.5% from the headline figure. Fuel prices rose for both petrol and diesel, with these figures registered when petrol was £1.55 per litre and diesel £1.62. Inflation, over Q4 2023, is likely now be slightly below the Bank of England’s forecast of 4.6%.
• The BRC-KPMG measure of retail sales slowed to 2.5% in October, down from 2.7% in September.
• Average regular pay (excluding bonuses) was estimated at £621 per week in nominal terms (not adjusted for inflation), higher than the estimate for a year earlier (£621 per week) and £479 per week in real terms (constant 2015 prices), higher than the estimate for a year earlier (£474 per week).