Gradual improvement continues (Aug 09)

Retail sales remain strong and the resilience shows no sign of fading anytime soon. What’s more, there have been signs of improvement in spending off the high street. So while consumer spending is probably still falling, it seems to be contracting at a slower rate than before. The key question is whether this improvement will continue. We doubt it. Tax rises are looming. Credit conditions have eased, but only marginally. And while the flexible labour market may be helping firms to avoid redundancies, cuts in average hours and pay are still denting households’ incomes. We continue to expect both retail sales volumes and overall consumer spending to fall next year.