21 Jan 2015
UK consumer spending expected to improve - ING
FXStreet (Barcelona) - James Knightley, Senior Economist at ING, shares that rising wages, falling unemployment and plunging inflation are creating a very positive environment for consumer spending in the UK.
Key Quotes
“[..] the household sector is starting to get better news with plunging fuel and food prices helping to boost spending power.”
“At the same time, wages are rising. We expect the 3M moving average to hit 2% YoY today as the effects of the 3% rise in the national minimum wage gradually feed into the calculations. With Incomes Data Services reporting that wage agreements in general are starting to rise, it appears that a tightening of labour market conditions is starting to generate some modest inflationary pressures.”
“Meanwhile, unemployment looks set to fall to 5.9% today and with inflation at just 0.5%, the so-called misery index, which is the sum of the two series, is back down to the lows seen in the boom period of the first five years of the current century.”
“In combination with the positive real wage growth story we are now seeing in the UK and the fact that the starting point from which people start paying income tax rises to £10,600 from £10,000 in April, it means that we could be talking about real household disposable income growth of close to 4% this year.”
“Such a growth rate would allow consumers to increase their spending significantly and with the Bank of England’s credit conditions survey also pointing to rising demand for credit we think that the market will see positive GDP growth surprises this year.”
“With the Bank of England targeting inflation in two years’ time we suspect that the hawks on the MPC will continue voting for rate rises – note today’s BoE minutes are expected to show both Martin Weale and Ian McCafferty voting for a 25bp rate rise. For now though there is no pressure to raise interest rates, but if domestically generated price pressures do start to pick up – as we expect through this year – the case for BoE policy tightening will build.”
Key Quotes
“[..] the household sector is starting to get better news with plunging fuel and food prices helping to boost spending power.”
“At the same time, wages are rising. We expect the 3M moving average to hit 2% YoY today as the effects of the 3% rise in the national minimum wage gradually feed into the calculations. With Incomes Data Services reporting that wage agreements in general are starting to rise, it appears that a tightening of labour market conditions is starting to generate some modest inflationary pressures.”
“Meanwhile, unemployment looks set to fall to 5.9% today and with inflation at just 0.5%, the so-called misery index, which is the sum of the two series, is back down to the lows seen in the boom period of the first five years of the current century.”
“In combination with the positive real wage growth story we are now seeing in the UK and the fact that the starting point from which people start paying income tax rises to £10,600 from £10,000 in April, it means that we could be talking about real household disposable income growth of close to 4% this year.”
“Such a growth rate would allow consumers to increase their spending significantly and with the Bank of England’s credit conditions survey also pointing to rising demand for credit we think that the market will see positive GDP growth surprises this year.”
“With the Bank of England targeting inflation in two years’ time we suspect that the hawks on the MPC will continue voting for rate rises – note today’s BoE minutes are expected to show both Martin Weale and Ian McCafferty voting for a 25bp rate rise. For now though there is no pressure to raise interest rates, but if domestically generated price pressures do start to pick up – as we expect through this year – the case for BoE policy tightening will build.”