The Office for National Statistics' latest data reveals that the value of retail sales in November was up 3.7 percent year-on-year.
While Q4's performance will trump last year's growth, Verdict expects retail to begin 2007 on a sour note as a squeeze on household incomes serves to dent consumer confidence.
The fact that volumes rose again in November - by 0.3 percent -despite the third successive month of price increases, demonstrates that consumer confidence remains fairly resilient, to a certain extent.
Verdict believes that the housing market is playing a key role in underpinning consumer sentiment at present, since it has completely outperformed all expectations in recent months and shows little sign of abating - particularly since a bumper round of city bonuses will only help to stoke the market even further in the New Year.
This buoyant activity in the housing market and the fact that retail sales continue to follow an upward trajectory, despite the introduction of higher prices, will only serve to harden the Monetary Policy Committee's stance.
With CPI inflation hitting a 10-year high of 2.7 percent last month, the MPC will be eager to rein in inflation, cool housing market growth and prevent people using the CPI figure as a bargaining chip to negotiate pay rises in the New Year.
We believe the evidence is now in place for the MPC to implement a further interest rate rise towards the end of Q1 2007.
Verdict expects the final quarter to be better than last year and reiterates its estimate of 3.3 percent growth for Q4. However, while Christmas spending tends to remain relatively ring fenced, consumer confidence is likely to take a knock in the New Year.
marketing@alchempro.com
