The Week Ahead 23 May 2022 - The UK government’s financial health
What to watch out for in the UK economy and property market this week.
Some unexpected good news came last week with the UK retail sales figures – a 1.4% rise in April, compared to forecasts of a 0.2% fall. This was due to more spending in supermarkets on alcohol and tobacco, and increased shopping online for clothes. Warmer weather inevitably leads to brisk sales for spring fashions, but the figures are seasonally adjusted which suggests that we have bought new clothes above and beyond a typical April. Doubtless people have looked at the cheap t-shirts bought last spring (during lockdown) and decided smarter clothes are needed for the new out-and-about lifestyle we live in 2022.
This does not sit well with the cost of living crisis narrative – CPI inflation hit 9.0% in April, the highest level since 1982 – so how do we explain it? The preceding two months, February and March, saw falling retail sales so we may have seen some pent-up demand come through, particularly from those who were paid bonuses in March / April. Also, unemployment is very low at 3.7%. So while consumer incomes are being squeezed, most workers are still earning and in a position to splash out now and then. This is perhaps a timely reminder that while consumers may have less money for discretionary spending in 2022, that should not be interpreted as all non-essential purchases have gone on hold. Purse strings will still loosen for special occasions, like holidays. This will make 2022 a complicated year for analysing the retail and leisure property markets.
This week we find out why the Chancellor of the Exchequer is reluctant to give in to pressure to help consumers more, as data on the UK government’s financial health is released. The government has probably slipped further into the red as higher interest rates increase the cost of servicing the national debt. This could increase pressure on the government to adopt the controversial windfall tax on energy firms that it has resisted up to now.
Things to watch for this week
Tuesday 24th May
UK Government Fiscal Deficit, April
Previous: -£18.1 bn
Forecast: -£19.5 bn
While the government’s finances have been gradually improving in the last 18 months, we are expecting a deterioration in April as higher interest rates push up repayments on the national debt.
Wednesday 25th May
GfK German Consumer Confidence, June
Previous: -26.5
Forecast: -25.0
German consumer confidence has deteriorated sharply in recent months on rising inflation and the war in Ukraine. We expect a figure broadly in line with last month given both of those downward pressures remain in place.
Thursday 26th May
US initial jobless claims, four week average to 21st May
Previous: 199.5k
Forecast: 209k
Jobless claims in the US have been gradually trending upwards since early April, suggesting the labour market is now stepping back from the boom conditions seen last year. We expect the latest figures to report another increase.
