Tue. Dec 7th, 2021


UK consumer spending shows resilience driven by early Christmas shopping and enthusiasm for dining and entertainment despite rising inflation, which is putting pressure on the Bank of England to raise interest rates.

Several factors threaten the boom in household spending, including soaring inflation a decade highlight, tax increases, rising gas prices and the withdrawal of Covid support for employment and income.

“But for now, consumers remain resilient,” said Andrew Goodwin, UK chief economist at Oxford Economics, a consulting firm.

Both official and non-standard economic data showed that consumer spending on goods and services increased in October and November, despite the winds. Early Christmas shopping helped retail sales return to growth last month, while spending in theaters, pubs and restaurants returned to pre-pandemic levels.

People are “naturally in a festive mood”, said Elizabeth Martins, senior economist at HSBC Bank.

Strong works numbers, record high vacancies, falling Covid-19 infection rates and the end of the September fuel crisis led to more upbeat consumer confidence, which rose 3 points to minus 14 in November, according to an index compiled by research firm GfK.

The Governor of the Bank of England Andrew Bailey warned in an interview with The Sunday Times that economic activity “slowed down” and that risks to its inflation forecasts were “two-sided”. The BoE currently expects inflation to peak at 5 percent in April.

However, Goodwin said higher-than-expected spending in the health and consumer sectors would “encourage members of the Monetary Policy Committee who are concerned about slowing growth” ahead of its meeting next month.

Adam Hoyes, an economist at Capital Economics, said the positive incoming data “contributes to the evidence that activity held up well in October and will raise expectations that the Bank of England will raise interest rates from 0.10 per cent to 0.25 per cent in December”.

Revenue from UK cinemas rose to pre-pandemic levels during October and November, according to data by Box Office Mojo, which tracks box office transactions.

Bar graph from weekends in October to second week in November, $ m showing that spending in UK cinemas is above pre-pandemic levels

Similarly, the number of restaurant eaters on Saturday 20 November was 30 percent above here that of the same day of the week in 2019, according to the discussion platform Open Table.

“Restaurant sales continued to be very strong,” Martins said.

Transactions at the sandwich chain Pret by Manger also increased through the fall as numbers of returning office workers has grown.

Line chart of January 2020 average = 100 showing transaction volumes at Pret A Manger stores increased

Both the value of bank transactions and credit and debit card transactions showed an upward trend in the fall, according to figures by Fable Data, a data company, and the Bank of England.

In recent weeks, growth in consumer spending has “increased above the recent average”, says Avinash Srinivasan, analyst at Fable Data, and reaches its highest reading this year in the week to November 14 – 12 percent above 2019 levels.

Spending in pubs and restaurants showed the same trend, he added, and was “now consistently about 10 percent above 2019 levels”.

Line chart of% change compared to equivalent week in 2019 showing that UK consumer spending has increased

Retail numbers rose 4 percent in the week ended Nov. 20 compared to previous weeks to about 88 percent from the level seen in the same period before the pandemic, according to data from retail consultant Springboard.

“The start of the Christmas shopping season started in earnest last week in many retail destinations,” said Diane Wehrle, insight director at Springboard, noting that the main street, shopping malls and major cities have benefited the most.

It is clear that buyers “move to larger towns and cities to enjoy the Christmas atmosphere”, she added.

She expects pedestrians to increase by a further 8 percent in the week of Black Friday, the American-inspired sales holiday, which falls on November 26th.

The chances of greater spending during the festive season are supported by the rapid deployment of the third coronavirus attack, with more than one in four people aged 12 or older in the UK already receiving the shot, reducing the risk of lock-up restrictions greatly reduced reinstatement.

After a subdued Christmas last year, “we could see consumers splashing out on a bumper holiday season, especially when many households will have accumulated savings”, said Jacqui Baker, partner and head of retail at tax advisory firm RSM UK.

The forecast comes as mobility continues to normalize, with the use of rail, buses and the London tube to their highest levels since the start of the pandemic. Meanwhile, flight numbers are picking up rapidly as seasonal leisure trips return. “People are definitely traveling more,” says Gabriella Dickens, an economist at consulting firm Pantheon Macroeconomics.

Line chart of rolling 7-day average,% change compared to the same week in 2019 showing UK flight numbers rising

Non-standard economic data such as footfall, restaurant bookings and mobility measures are less comprehensive than official figures of economic activity, but they are increasingly monitored by policymakers as more timely indicators of the health of the economy.

Consumer spending has been the driver of the British economic recovery since the height of the pandemic, which brought many sectors to a standstill. In the third quarter, it contributed 1.2 percentage points of the 1.3 percent economic growth.

Some economists predict that growth will slow in the last months of the year as the effect of easing Covid constraints diminishes, supply chain disruptions and shortages weigh on production capacity and rising inflation leads to a squeeze on real income.

“The increase in national insurance contributions, coupled with higher inflation eroding household purchasing power, as well as rising interest rates, could lead to more subdued household spending,” warned Yael Selfin, chief economist at KPMG UK.

But “for now at least” the data “offers a positive sign”, says Sandec Horsfield, economist at Investec.

“Not only do households’ incomes benefit from the continued strong growth in appointments, but they also have a significant amount of excess savings built up during the pandemic,” she noted.



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