Two days ago, the credit card company Visa said that Black Friday’s sales failed to boost British spending in November, while consumers paid less on Christmas traveling and on new vehicles, sending the inflation-adjusted Visa consumer spending index down by 0.9% y/y. Even if November’s decline was softer than October’s when the index tumbled by 2.1%, the company claimed that UK consumption is "still on track for its worst annual performance in five years".
On Thursday, however, the Office for National Statistics will likely indicate that retail sales grew by 0.3% y/y in November, as overseas shoppers arrived in the country to reap the benefits from a weaker sterling and better-quality products before the Christmas season. Note that in October, retail sales dropped for the first time in four years by an equivalent percentage. Excluding fuel, the relevant measure is said to rise by 0.4% y/y compared to -0.3% seen previously, while monthly core retail sales are expected to rise by 0.4 percentage points to 0.5%.
The economy, however, might find it hard to see rising consumer confidence as inflation continues to outpace wage growth, squeezing households’ pockets. Although today’s data showed that average earnings including bonuses in the three months to October jumped from 2.3% y/y to 2.5% as expected, yesterday’s CPI readings revealed that growth in consumer prices picked surprisingly to a five-year high of 3.1% y/y in November. Besides that, Brexit fears also loom on wages as business leaders avoid excess pay increases until they get a clearer picture of the future relationship between Britain and the EU.
The recent peak in inflation, however, is not expected to have an impact on the Bank of England’s rate decision due on Thursday as the central bank believes that the pound’s weakness emerging following the Brexit vote is the main driver behind rising price pressures. Moreover, it projects that over the next three years inflation will return to the target of 2.0% as the local currency steadies. Note that the bank’s benchmark rate is forecasted to remain steady at 0.50%.