The former Bank of England governor Lord Mervyn King once said the real meaning of Christmas for the economy and interest rates would not be revealed until Easter.
With the 12 days of Christmas only just over, his successor Mark Carney seems to have spotted an early downbeat message emerging from the high street.
In a speech at the bank on Thursday, Mr Carney said household spending growth had slowed as uncertainty about the overall economic outlook had become more entrenched. While he expected this and other negative trends to reverse, this rebound was not assured, he said.
“With the relatively limited space to cut the bank rate, if evidence builds that the weakness in activity could persist, risk management considerations would favour a relatively prompt response,” he said.
“The economy has been sluggish, slack has been growing, and inflation is below target. Much hinges on the speed with which domestic confidence returns.”
He also raised the prospect that the Bank of England could add further economic stimulus by increasing its purchases of both gilts and corporate bonds. While at 0.75 per cent there is not much room for further rate cuts, Mr Carney said that including further quantitative easing and so-called forward guidance, the Bank had the equivalent of 250 basis points (2.5 percentage points of policy space) to play with.
Whether the Bank of England will fire any of this arsenal at its next meeting in early February is a moot point. Indeed, Mr Carney said there was a debate within the monetary policy committee (MPC) over the “relative merits of near-term stimulus” to reinforce the expected recovery in UK growth and inflation.
One factor will be whether the end of the protracted political stalemate over Brexit that ended when Boris Johnson won an 80-seat majority on 12 December will translate into a rise in consumer confidence, and thus spending.
The latest data published on Thursday showed there is certainly room for improvement. The British Retail Consortium (BRC) said shops suffered their worst annual performance for at least a quarter of a century in December.
The value of retail sales fell 0.1 per cent in 2019, from 1.2 per cent growth in 2018, so making the worst year since comparable data were first gathered in 1995.
This was despite desperate price cutting by retailers in the run-up to the festive season. The BRC said prices were down 0.4 per cent in December thanks to a 1.5 per cent slump in prices for non-food items – otherwise known as Christmas presents.
Howard Archer, chief economist at the EY Item Club, an economic forecaster, said it was more evidence of a “difficult Christmas”, adding that it was a “blow to fourth quarter 2019 growth prospects as [the] data point to weak consumer spending”.
Barclaycard said consumer spending was up just 1 per cent year-on-year in December, while John Lewis reported sales fell 2 per cent year-on-year in the seven weeks to 4 January.
Brexit was clearly a factor. The BRC’s chief executive Helen Dickinson said the public’s confidence in Britain’s trade negotiations with the EU would have a big impact on spending over the coming year.
Last month and in November, two of the nine policymakers on the MPC voted to cut interest rates to 0.5 per cent from 0.75 per cent, although Mr Carney himself backed keeping rates on hold.
With the pound down as much as 0.5 per cent against the dollar after Mr Carney’s remarks, the odds of a very late Christmas present for shoppers and retailers alike have just shortened.