UK consumer spending makes a tepid start to 2018

After what was a particularly tough Christmas trading period for retailers, consumers kept their foot on the brakes throughout January.

Retail sales barely increased in the first month of the year (0.1% rise), suggesting shoppers were reluctant to heavily participate in the traditional January sales, backing-up separate findings from Visa. For now, we see few catalysts for a sustained rebound in spending over coming months.

When it comes to interest rates outlook, it's worth remembering that the Bank has already factored much of the weakness into their assessment of UK growth

Consumer confidence remains depressed (despite some recent improvement), and disposable incomes look set to remain under pressure.

True, wage growth has been performing better recently, giving the Bank of England increased confidence that the tight labour market is prompting firms to offer more generous pay packets. That said, it’s still early days, and we think there remains a risk that some firms take a more cautious stance, amidst slower economic momentum and elevated uncertainty. At the same time, food and fuel costs are continuing to rise, even though in general consumer prices have largely adjusted to the post-Brexit weakening in the pound.