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.