UK Consumer spending lower than expected

February 20, 2018

UK Consumer Spending

The volume of retail sales in the UK grew by 0.1 per cent month-on-month, far below analysts’ expectations of 0.5 per cent growth in January. On the year, sales were up by 1.6 per cent, from 1.4 per cent, far below expectations for a 2.6 per cent rise. It appears that rising inflation and falling real wages have finally resulted in consumers cutting back on spending and given the heavy reliance that the UK economy has on consumption the figures will not be good for overall GDP. However, it is expected that this year inflation will fall and be overtaken by wage growth, returning increased spending power to consumers, although rising interest rates may remove some of the benefits.

French Unemployment Falls Rapidly

The unemployment rate in France has fallen rapidly over the three months to December 2017, from 9.6% to 8.9%, to the lowest rate since 2009. In addition, both the employment rate and activity rate increased, suggesting that the fall in unemployment has been driven by even faster job creation. The improvement in the jobs market is reflective of the strong rates of GDP growth seen in Europe over 2017. However, while the unemployment rate in France still appears high relative to countries like the UK, US or Germany, there has been a sharp increase in businesses reporting worker shortages, particularly in skilled sectors. Therefore, the biggest challenge for government is not necessarily to increase employment demand but to retrain the unemployed to meet the current needs of industry.

Stock Markets Rebound

Following two weeks of declines, global stock markets recovered somewhat, drawing a line under the selloff, at least for the time being. However, the underlying volatility within markets remains high as individual company shares have seen big movements in both directions. It appears that investors are becoming more selective of what they are owning and being less forgiving of companies that miss expectations. All attention will remain on bond yields and whether inflation will continue to surprise on the upside. The element of caution that has entered the markets over the last two weeks is unlikely to disappear rapidly.

Index Open Close Change % Change
FTSE 100 7092 7294 202 2.85%
S&P 500 2619 2731 112 4.28%
Dax 12107 12451 344 2.84%
Cac 40 5079 5281 202 3.98%
Nikkei 225 21890 21720 -170 -0.78%
UK 10 Year Gilt Yield 1.57 1.58 0.01 0.64%