Retail sales volatile, but levelling off (Aug 08)

The official retail sales data remain unusually volatile. But at the very least, it appears that the underlying trend in sales has been flat since the beginning of this year. What’s more, the gloomier message given by the surveys suggests that conditions on the high street could well be worse than this. And there is increasing evidence of spending weakening off the high street. At least recent communications from the Monetary Policy Committee have suggested that an interest rate cut isn’t too far away. But with rising inflation still squeezing real incomes and unemployment now clearly on an upward trend, we think that spending will weaken further. For now, we still expect real consumer spending to stagnate next year, but an outright fall is looking increasingly likely.