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Updated 17:16 18/09/19

Squeeze on household budgets threatens retailers’ Christmas

By Steve Ward, News Editor

12 Dec 2017

Inflation rose to 3.1% in November, the highest in nearly six years. While recent data shows average weekly wages growing at just 2.2%. This continues the squeeze on UK households - the majority seeing a fall in spending power.

The 3.1% rise is above the Bank of England 2% target, despite November’s 0.25% increase in interest rates. Though, it could be argued that without the 0.25% rise today's figures could be worse. Whatever the effects of the interest rate hike, Mark Carney, Governor of the Bank of England, is unlikely to take further action and is said to believe the 3.1% is a temporary spike.

Paul Hollingsworth of Capital Economics, follows this financial wisdom saying, "All in all, there is little here to suggest that the Monetary Policy Committee needs to raise interest rates again quickly to stamp out inflationary pressures. Indeed, we think that Consumer Price Index inflation has probably now peaked."

The pressure on spending, just before Christmas, is bad news for retailers. Though there was early optimism, Richard Lim, chief executive at Retail Economics, said that the rise had come "at precisely the wrong time". Information Handling Services Markit research for Visa predicts a 0.1% fall in spending. This would be the first fall in Christmas spending in five years.

Mark Antipof, Chief Commercial Officer at Visa, said, “Looking back, consumers were in a sweet spot in 2016 – low inflation and rising wages meant there was a little extra in household budgets to spend on the festive period. 2017 has seen a reversal of fortunes – with inflation outpacing wage growth and the recent interest rate rise leaving shoppers with less money in their pockets.”
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