Interest rate decisions from both the Bank of England and US Fed this week should continue to set the tone for investors. Whilst any changes this time around would be unexpected, the continued strength of the US economy, with Q4 GDP data suggesting an annualised expansion of 3.3% last week, may lead the market to question how many rate cuts we’ll actually now see in 2024. Consumer spending in the US has remained strong, but here in the UK it looks to be a different story.

Although consumer confidence has risen to its highest level for a couple of years and UK retail sales data in November gave a brief reason for cheer, December figures were significantly worse than expected, with spending plunging by 3.2% and shop footfall declining in the final weeks of year. December was in fact the largest single-month spending fall since January 2021, when the economy was under quite severe Covid restrictions. Before that, you need to go back to June 2008, during the Great Financial Crisis, to find a larger monthly decline.

The weakness was pretty widespread, although non-food stores fared slightly worse. The figures may be partly explained by an early start to Black Friday sales and wider discounting in November simply bringing spending forward rather than boosting it, and in recent months the likes of Kingfisher, JD Sports and Watches of Switzerland have all warned of lower profits. In the current fragile environment share price reactions can be severe and retail stocks remain some of the most shorted in the market. Often heralded as a more resilient corner of the economy, even the luxury consumer seems to be feeling the pinch, with Burberry shares having fallen by over 30% since the end of September. Businesses will no doubt be hoping for a consumer revival over the coming months.

Please note that the value of investments and the income from them can go down as well as up and you may not receive back all the money invested. Past performance is not a reliable indicator of future results. Any views expressed are those of the author.


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