Although retail sales volumes were a whopping 5.4% higher in January than a year ago, this does not have the hallmarks of an unsustainable boom. The average price of retail purchases has fallen by about 3% over the same period (thanks mainly to lower petrol prices), so households are only spending 2.3% more than they were a year ago. Since nominal incomes are growing at an annual rate of about 4%, reflecting growth in both employment and wages of about 2%, there is plenty of scope for households to keep increasing their spending over the coming months. Indeed, with confidence rising again, conditions in the labour market improving and households’ balance sheets in better health, we expect growth in retail spending to remain robust.
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