ECONOMIC OUTLOOK
IN-STORE retail sales of non-food items fell by their biggest monthly margin in five years in October, according to data from the British Retail Consortium (BRC). Online sales were also disappointing, rising at half the pace of the threemonth and 12-month averages.
The data suggests consumers are feeling the squeeze from rising inflation and falling real wages, and are cutting back on nonessential purchases. One in five shoppers said they would also look to save money on food shopping on the next 12 months as inflation pushed up prices.
Interest rates rose last Thursday for the first time in a decade, from 0.25% to 0.5%. The Bank of England’s Monetary Policy Committee (MPC) also indicated there would be two further quarter-point rises over the next two years. Higher interest rates might ordinarily cause the pound to strengthen. But the relatively dovish tone of the MPC’s statement – expecting rates to rise only to 1% by the end of 2020 – triggered a 1.4% fall in the pound against the US dollar.
The rate rise came despite forecasts of relatively weak economic performance, with the MPC now expecting the UK economy to grow at about 1.7% a year over the next three years.
Meanwhile, a key manufacturing survey revealed surprisingly strong performance in October, with activity increasing more than expected. The IHS Markit/CIPS UK manufacturing purchasing managers’ index (PMI) rose to 56.3 in October, continuing an improving trend since last year’s Brexit vote.
However, survey respondents reported rising input prices which are likely to feed into higher inflation in coming months.
The UK’s services sector also reported a marked pick-up in activity in October, boosted by “resilient client demand” and “improved order books”. The IHS Markit UK services PMI climbed to 55.6, from 53.6 in September.
Markit commented: “Survey respondents noted a rebound in new order growth from September’s 13-month low had helped to lift business activity during October. Incoming new work increased at a solid pace that was the fastest since May.”
House prices rose in October, according to Nationwide Building Society. Property values were 0.2% higher than in September, with the annual rate of growth edging up to 2.5%.
But new car registrations fell by more than 12% in a further sign of sector weakness reflecting “declining business and consumer confidence”. New car registrations totalled 158,000 last month, down from 180,000 in October 2016, according to the Society of Motor Manufacturers and Traders (SMMT). For 2017 to date, there have been 2.22m registrations, down from 2.33m over the same timeframe in 2016.
SMMT chief executive Mike Hawes said: “Declining business and consumer confidence is undoubtedly affecting demand in the new car market but this is being compounded by confusion over Government policy on diesel.”