Economic Monitor: Consumer spending power improves

The UK’s economic performance at the start of 2024 has shown signs of improving momentum. The final estimate of GDP (released last week) confirmed that the UK entered a technical recession at the end of 2023. However, since then, other indicators such as business sentiment and retail sales have improved slightly, suggesting GDP is unlikely to have fallen further during Q1 2024.

The Quarterly National Accounts data also reveal that UK consumers are saving more as real income gains materialise into healthier savings buffers. These gains are expected to continue into Q2 and Q3, bolstered by lower inflation (particularly energy bills) and the cut in national insurance tax taking effect from this month.

Commodity prices have started to trend upward, although so far this has been limited to metals, particularly tin and gold. Oil prices also rose in March, and upward pressure on them is likely to remain, as longer shipping routes require more fuel and Russian refining facilities come under attack. Whilst shipping costs remain 50% higher than at the end of 2023, costs have started to come down, from a peak of 137%, which will ease pressure on businesses. Nonetheless, input costs are expected to remain high and broadly plateau over 2024.

• GDP grew in January by 0.2%, following a contraction of 0.1% in December. Services activity was flat, and the largest downward contributor was education activities. The biggest upward contributor was professional, scientific and technical activities. Consumer-facing services also showed no growth, with the biggest downward contributor being buying and selling, renting and operating of own  or leased real estate. In contrast, sports activities and amusement and recreation activities provided the largest positive contribution.
• Inflation eased notably in February and the Consumer Price Index lowered to 3.4%. Of the headline rate, 0.6% emanates from food, 0.8% from restaurants and hotels and 0.7% from recreation and culture. Housing and energy costs, as well as transport, are now pushing down on inflation, shaving off 0.3% and 0.03% (respectively) from the headline figure. Fuel prices rose for both petrol and diesel, with these figures registered when petrol was £1.42 per litre and diesel £1.51. 
• The BRC-KPMG measure of retail sales growth decelerated to 1.1% in February, down from 1.2% in January.
• In the three months to January 2024, average regular pay (excluding bonuses) was estimated at £627 per week in nominal terms (not adjusted for inflation), higher than the estimate for a year earlier (£593 per week) and £480 per week in real terms (constant 2015 prices), higher than the estimate for a year earlier (£472 per week).