Period covered: January 24Published: January 05, 2024Read time: 1min

Economic Monitor

Economic Monitor: Demand holds up at the end of 2023

Consumer sentiment improved once more, last month, and perceptions about economic conditions in the year ahead are becoming less pessimistic. This improvement was also reflected in services activity having rebounded in the last two months of 2023, with firms reporting better-than-expected consumer spending on leisure and hospitality services.

Elevated prices did not deter consumers from spending over the festive period, and recent Bank of England data suggest credit card borrowing helped buoy spending. With real wage growth expected to remain positive over H1 2024, this offers an upside to spending over the coming months. The physical quantity of retail goods bought is likely to remain subdued, however.

Whilst inflation has eased, upside risks remain, with supply-chain resilience being questioned by recent disruption in the Red Sea. Freight rates for containers travelling from the Far East to Western Europe have more than doubled in the space of a week, further highlighting the challenges associated with inflation returning to the 2% target. Immediate interest rate cuts hence are unlikely unless there is a substantial easing in headline CPI and or a dramatic deterioration in economic conditions.