Heading for a strong end to the year (Nov 09)

All of the main measures of retail spending were strong in October. And spending will receive further support in the next month or two as consumers bring forward some purchases ahead of the reversal of the VAT cut on 1st January. So although it is unlikely to be a bumper Christmas, spending could – barring any big tax rises in December’s Pre-Budget Report – end the year on a reasonably strong note. However, spending could weaken pretty quickly next year once the fiscal squeeze gets underway and firms cut their labour costs further. We continue to expect both retail sales and overall consumer spending to fall next year, even though the economy may be expanding again.