Economic Monitor: GDP revised up to 1.8% above pre-Covid levels
Despite signs of weakness in a loosening labour market, household consumption is holding up so far. Heading into the final quarter of the year, nominal wage growth remains strong, boding well for real consumption. Job vacancies meanwhile have fallen below a million and the unemployment rate edged further up to 4.3%.
Retail sales volumes remain flat over the previous year, though sales growth in pound sterling (nominal) terms has been buoyant. Business cost bases remain swelled, and still-high input costs are slowing down the pass-through of price reductions. Easing inflation, however, will start to reduce nominal sales growth over the next few quarters.
Interest rates were kept unchanged at the last meeting of the Monetary Policy Committee and are expected to be held at their current rate of 5.25%. This cumulative tightening in lending conditions will weigh on the economy, with most of the impact still to be felt. The Bank of England is expected to keep interest rates elevated at least until the 2% inflation target has been hit. Pressure on household incomes will grow in higher housing costs and stress on businesses will linger, particularly those with higher debt burdens. The resilience of the past year will be tested into 2024 but the outlook remains broadly flat over the coming quarters, and uncertainty remains as to how quickly inflation will fall.
Harvir Dhillon, Economist at the British Retail Consortium