The Week Ahead: a post-Budget bounce eases January Blues
Since it幼女视频檚 now the ninth week of January and the weather forecast is a coin toss between rain and wind or snow and ice, I thought I幼女视频檇 start this week with some positive news!
First, now that November幼女视频檚 Budget and all its associated uncertainty is behind us, consumers have seemed more willing to open their wallets. That幼女视频檚 crucially important because about two-thirds of the UK economy is based on consumer spending. Indeed, retail sales volumes rose by 0.4% in December. Admittedly, sales were still down in the all-important Golden Quarter, highlighting the damage all the speculation about the Chancellor幼女视频檚 plans had. But, a pick-up in December is encouraging and, compared to the previous year, retail sales actually grew by 3% in Q4.
Consumer confidence also increased in both December and January. In fact, this month consumer confidence rose to its highest level since August 2024, providing more evidence that households are feeling better now that the Autumn Budget has passed and it didn幼女视频檛 contain any major imminent tax rises. There was a big rise in confidence around consumers幼女视频 own personal finances, taking this measure to its highest level in 17 months. Major purchase intentions were also the strongest since January 2022. Combined with the increase in retail sales, these are promising signs that consumers are more confident and will start to spend more, which is one of the key economic questions of this year.
It wasn幼女视频檛 just consumers feeling better post-Budget. Business sentiment also jumped in January. The composite PMI reached its highest level in almost four years. If you don幼女视频檛 closely, I get it. But, they幼女视频檙e probably the most followed set of business surveys. They track output, new orders, prices and employment in the private sector and have the advantage of being published early in the month, giving us a first look at how the economy is performing. January幼女视频檚 big uptick therefore suggests that the UK economy rebounded strongly at the start of the year after a weak end to 2025.
Admittedly, a decent portion of this improvement is probably just activity that should幼女视频檝e happened last year, but was postponed because of the Budget. Once we smooth growth out over Q4 and Q1, the picture is probably one of ok growth; nothing spectacular, but worries about recession are probably overdone.
However, there are two areas of concern. First is the labour market. Despite the rise in the PMI幼女视频檚 output index, employment balances continued to fall and are pointing to shrinking private sector employment. Indeed, the number of people on company payrolls dropped again in December. Much of this is probably due to the surge in employment costs, which this line from the PMI release supports: 幼女视频淪urvey respondents overwhelmingly linked rising input costs to elevated wage pressures.幼女视频
This leads to the second area of concern, which is cost pressures. Even though there are some tentative signs demand is recovering, businesses are facing another wave of cost increases, not least from another National Minimum Wage hike in April. That adds pressure on firms to defend margins by continuing to raise prices, which would explain why surveys show price pressures remain strong, despite the weak labour market and tepid growth. Businesses that lack pricing power or that are unable to cut costs further are especially vulnerable.
For the Bank of England, the combination of a weak labour market and sticky inflation is tricky. The employment numbers mean there幼女视频檒l be more rate cuts, but signs of a pick-up in the UK economy and stubborn inflation mean there won幼女视频檛 be many of them 鈭 and we幼女视频檒l probably have to wait until April. But, more on that next week!
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