UK Economy Seen Picking Up In Third Quarter After Consumer Spending Extends Rebound

Confederation of British Industry data shows consumers dug deeper into their pockets in September

UK economic growth is likely to have picked up in the recent quarter, according to economists and strategists, after the latest data showed the nascent reboud of consumer spending continuing into September.

The latest signs of encouragement came from the Confederation of British Industry Distributive Trades Survey, released Wednesday, which saw retail sales rise sharply between August and September.

“Consumers have defied stagnant wage growth and rising inflation and put their hands in their pockets, with today’s CBI data showing volumes have grown at the fastest rate for two years,” says Dennis de Jong, managing director at retail trading firm, UFX.com.

This month’s CBI realised sales index rose to its highest level since September 2015, coming in at 42, up from 6 in August.

“As we move out of summer and into the all-important Christmas period, both business owners and the UK government will hope the uptick continues,” says de Jong. “Though, with continued uncertainty over the outcome of Brexit negotiations, today’s data may end up being something of an anomaly.”

The UK economy slowed in the first half of 2017 after being weighed down by a sharp fall in the volume of retail sales as consumers began to pare back spending across a host of areas. A large portion of the fall in retail activity stemmed from a post-referendum increase in inflation, which now outstrips wage growth in the UK once again.

“The three-month average of the reported sales balance has a reasonable, albeit imperfect, relationship with annual growth in the official measure of sales volumes,” says Paul Hollingsworth, an economist at Capital Economics. “On the basis of past form, it points to growth accelerating from about 2% to about 3% at the end of Q3.”

Wednesday's data is just the latest in a series of economic bellwethers to have pointed toward a nascent turnaround of the UK economy. Office for National Statistics figures released last week highlighted a pickup in high street spending taking place earlier during August, while the unemployment rate has fallen by a further 30 basis points to 4.3% during the third quarter.

“The latest survey suggests that consumers are weathering the squeeze on their real incomes relatively well. Retail spending looks set to have posted another solid expansion in Q3, which should help overall spending growth to re-gain a bit of momentum,” says Hollingsworth.