This Friday in Black and White

Posted on Nov 24, 2021. by NTI

Red flags are popping up all over Threadneedle Street as the Bank of England edges closer to what we all know is inevitable: a rise in UK interest rates. Last week those jovial souls at the Office for National Statistics said that input prices in October had risen by 1.1 per cent to 13 per cent, compared with September, and as recently as last week consumer prices inflation for October was reported at 4.2 per cent, its highest in almost a decade. Last month those on the Bank of England's monetary policy committee surprisingly voted by a Chelsea score of 7-2 to keep interests rates where they are, but it is just a matter of time.

The question then arises: will consumers be enticed by the 'bargains' of Black Friday and its sibling days before and after, and what of Christmas in a month's time? Will there only be fear and reticence in Little Johnny's stocking this year? Did you know that the most recent American import, Black Friday, is the busiest shopping day of the year in the States? It is only a Santa's whisker away from being the same over here.  

All of this is the most important financial indicator of all, as household spending accounts for nearly two thirds of gross domestic product (we'll give you a couple of seconds to go back and re-read that last sentence, so mind-slamming as it is). When we were released from the wild at the end of the last lockdown in April we all dashed out and bought something, anything, we could put in a bag and swing along as we skipped down a high street. That initial fervour then dipped, as we focused on filling our bellies at casual dining establishments and staying in our uncle's cottage in Dorset, and it was only in September that retail sales soared again, by 0.8 per cent, causing councils and retailers to reach for last year's Christmas lights and dust down their recording of 'Do They Know It's Christmas?' Do they? Yes. Will it make them go out or stay in and buy stuff? Not sure.

Online sales, included in the overall figures, were 27.3 per cent of the total in October 2021, lower than at the peak of the pandemic, but higher than the 19.7 per cent share before it. This accounts for some of the 'hassle factor'. Can we be arsed to go out to the shops when we can buy something much smaller and more plasticky by staying in? The EY Item Club, using the Treasury’s model of the economy, published a new forecast this week and revised down its forecast for consumer spending growth this year from 4.8 per cent to 3.9 per cent. This includes both online and high street sales, so someone at EY reckons we will not hear the siren call of this Friday.

Wages have been pretty flat since March, but inflation, at 4.2 per cent when measured by the consumer prices index and 6 per cent for retail prices inflation, is heading higher and will not peak for some months. Then there are Mr Sunak's tax increases; the Institute for Fiscal Studies have reported that a person on £30,000 a year would need a 7.1 per cent increase in salary to compensate for the inflation and tax rises coming through. Cut and paste that sentence to your boss who is looking at you and your 2021 performance this year and working out whether you could be replaced by AI. Whilst we are at it, don't forget that in April of next year national insurance contributions will go up by 1.25 per cent.

The numbers are against you, but put a hot chestnut and some mulled wine in your tummy and you'll buy all the usual fluff and crap that you pointlessly purchase every year and place a bet on all the above being wrong ...

... even though it isn't.

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