Looking good ahead of Christmas

The official measure of retail sales painted a rather more upbeat picture of high street spending in the early run-up to Christmas than the anecdotal evidence. The true picture probably lies somewhere inbetween. But crucially, households’ finances are in better shape this Christmas than they have been for almost a decade. Accordingly, consumer spending should be quite robust over the festive period as a whole – albeit partly due to intense discounting by retailers. Looking further ahead, the boost to households’ real incomes from low inflation and interest rates is likely to fade a bit next year, while fiscal austerity will be an increasing drag. However, real incomes should still rise by a reasonable 2% or so, and so we do not anticipate too sharp a slowdown in consumer spending growth.