Despite soaring inflation, UK consumer spending continues to rise

Despite soaring inflation and increasing pressure from the Bank of England to raise interest rates, British consumer spending has shown resilience, driven by the enthusiasm for early Christmas shopping and dining out and entertainment.

Several factors threaten the rebound in household spending, including the jump to Ten years high, Tax hikes, soaring gasoline prices, and Covid’s removal of employment and income support.

“But for now, consumers are still resilient,” said Andrew Goodwin, chief British economist at the consulting firm Oxford Economics.

Both official and non-standard economic data show that despite headwinds, consumer spending on goods and services increased in October and November.Early Christmas shopping helps retail sales Resume growth Last month, consumption in movie theaters, bars and restaurants rebounded to pre-pandemic levels.

Elizabeth Martins, a senior economist at HSBC, said people are “obviously in a festive mood.”

Strong job number, The record vacancy rate, the decline in the Covid-19 infection rate, and the end of the fuel crisis in September led to more optimism in consumer confidence. Rose According to an index compiled by the research company GfK, it was 3 points to minus 14 in November.

Andrew Bailey, Governor of the Bank of England warn In an interview with the “Sunday Times”, said that economic activity is “slowing down” and the risks facing its inflation forecast are “two-way”. The Bank of England currently expects the inflation rate to peak at 5% in April.

However, Goodwin stated that higher-than-expected spending by the health and consumer sectors before the meeting next month will “provide some encouragement for members of the Monetary Policy Committee who are concerned about slowing growth.”

Capital Investment macro economist Adam Hoyers said that the positive data “further proves that economic activity remained good in October and will raise expectations that the Bank of England will raise interest rates from 0.10% to 0.25% in December”.

According to data from Box Office Mojo, which tracks box office transactions, UK film revenue rose to pre-pandemic levels throughout October and November.

Similarly, as of Saturday, November 20th, 30% of restaurant diners above According to data from the booking platform Open Table, the same day of the week in 2019.

“Restaurant sales have been very strong,” Martins said.

Sandwich chain store deal Pret at Manger It also increased throughout the fall because Returning to work grown up.

The line chart with the average value = 100 in January 2020 shows that the transaction volume of the Pret A Manger store has been rising

According to data companies Fable Data and the Bank of England, bank transactions in the fall and credit and debit card transactions are on the rise.

Fable Data analyst Avinash Srinivasan said that consumer spending growth in the past few weeks was “above the recent average” and reached its highest level this year in the week ending November 14, which was 12% higher than the 2019 level.

He added that spending in bars and restaurants is showing the same trend and “now has been about 10% higher than the level in 2019”.

A line chart of percentage change compared to the same period in 2019 shows an increase in UK consumer spending

According to data from retail consultant Springboard, in the week ending November 20, retail passenger traffic increased by 4% over the previous few weeks, reaching about 88% of the same period before the pandemic.

Diane Wehrle, Director of Insights at Springboard, said: “Last week, many retail destinations officially started the Christmas trading period,” she pointed out that shopping streets, shopping malls and large cities have benefited the most.

She added that shoppers “obviously prefer big cities to immerse themselves in the Christmas atmosphere”​​.

She predicts that during the week of Black Friday (November 26 is an American-style sales holiday), passenger traffic will increase by a further 8%.

The rapid launch of the third coronavirus vaccine supports the possibility of increased spending during the holiday season. More than a quarter of the UK population 12 years of age or older has already been vaccinated, greatly reducing the risk of blockade restrictions and re-introduction.

Jacqui Baker, partner and head of retail at tax consulting firm RSM UK, said that after the calm of Christmas last year, “we can see consumers squandering during a harvest festival, especially when many families are saving up.” .

This prediction is made as traffic continues to normalize, with the use of railways, buses and the London Underground reaching the highest levels since the pandemic began. At the same time, with the return of seasonal leisure tourism, the number of flights is increasing rapidly. Gabriella Dickens, an economist at consulting firm Pantheon Macroeconomics, said: “People will definitely travel more.”

A line chart of the rolling 7-day average, the percentage change from the same week in 2019 shows that the number of flights in the UK is rising

Non-standard economic data such as passenger flow, restaurant reservations, and liquidity indicators are not as comprehensive as official economic activity data, but policymakers are increasingly monitoring them as more timely indicators of economic health.

Since the worst of the pandemic, consumer spending has been the driving force behind the economic rebound in the UK, which has brought many industries to a standstill. In the third quarter, it contributed 1.2 percentage points to 1.3% economic growth.

Some economists predict that growth will slow in the last few months of the year, as the impact of the relaxation of Covid restrictions, supply chain disruptions and shortages put pressure on production capacity, while rising inflation has squeezed real income.

Yael Selfin, chief economist at consulting firm KPMG UK, warned: “The increase in national insurance contributions, coupled with rising inflation, which weakens the purchasing power of households, and rising interest rates, may lead to weaker household spending.”

But “at least for now” the data provides a “positive signal,” said Investec economist Sandra Horsfield.

She pointed out: “Family income not only benefited from continued strong recruitment growth, but also accumulated a large amount of excess savings during the pandemic.”

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