Consumers keep spending against all odds (Jun 08)

The better weather no doubt boosted sales of clothing and seasonal ranges in May, but the 3.5% rise in the official measure of retail sales volumes looks pretty implausible. Although some of the survey evidence had improved in May, none of it pointed to the biggest monthly rise in sales since 1979! Indeed, with households’ real incomes barely rising, it is hard to believe that they are splashing out on the high street. Even if sales did rise by 3.5%, this strength cannot be sustained – not least because any signs of consumer resilience increase the chances that the next move in interest rates will be up. We continue to expect consumer spending growth to weaken sharply over the next few months, especially now that we expect house prices to fall by around a third by the end of 2010.