The week ahead 21 October 2024 - UK retail sales beat expectations
What to watch out for in the UK economy and property market this week.
UK retail sales for September were surprisingly upbeat, with sales volumes rising 0.3% month-on-month. This was the third consecutive monthly increase and was well ahead of the consensus forecast of -0.3%. Of the seven retail sub-sectors, just two recorded declines – food stores and automotive fuel stations. In both cases, the extended period of high prices might have resulted in behavioural change among consumers, perhaps with less now being spent on ‘treat’ foods and a move away from driving for short journeys. On sales growth, the leading sector was computers and telecommunications sales, with the ONS reporting buoyant sales for electronic devices. September saw the launch of Apple’s latest iPhone. This is interesting, as smartphones and laptops are expensive purchases that consumers often delay during lean times; which suggests UK households feel more confident on the economic outlook and are happy to go ahead with big ticket purchases.
The UK took another step towards the next Base Rate cut when official figures showed CPI inflation declining from 2.2% in August to 1.7% in September; which is below the Bank of England’s 2.0% target. Forecasters had been predicting 1.9%, and the pound declined on the news, as investors speculated the Bank would press ahead with a rate cut in November. There is now discussion among analysts over the possibility of an additional reduction of the policy rate in December. Separately, the ECB cut its main interest rate by 25 bps last week.
Inflation is still expected to tick upwards in the October figures as the new Ofgem price cap comes into force next month, but the news is a reminder that inflation is no longer the main concern for central bankers. The UK looks firmly established in a new cycle of falling interest rates, which is good news for property markets.
This week sees PMI figures released for a range of major global economies, including the UK and USA. The convention of the index is that a reading of over 50 points to growth. We believe the approach of the UK Budget and the US general election will mean that both countries will see little movement in their PMI figures, which are safely above the pivotal 50 mark. Consumer confidence numbers are also scheduled for release for the Eurozone and the UK this week. With interest rates and inflation now declining, we see both reporting some improvement in sentiment.
This week's figures
WEDNESDAY 23 OCTOBER
Eurozone Consumer Confidence, October
12.9 previous
-12.6 forecast
While the general economic backdrop remains cool, we believe that falling interest rates and lower inflation has probably improved consumer confidence slightly in October.
THURSDAY 24 OCTOBER
US Composite PMI, October
54.0 previous
53.5 forecast
We believe the approach of the November general election (with the opinion polls pointing to a close result) has probably dampened but not derailed sentiment among American firms this month.
UK Composite PMI, October
52.6 previous
52.6 forecast
We see the index remaining unchanged in October, as the approach of the autumn Budget encourages a wait-and-see approach to investment and recruiting among firms.
FRIDAY 25 OCTOBER
GfK UK Consumer Confidence, October
-20 previous
-17.0 forecast
Given September’s unexpected decline in consumer confidence was not matched by a fall in retail sales, we believe that was a one-off and sentiment strengthened this month.
