The tone of the UK consumer economy story remains firmly positive, with consumer confidence remaining at an above-average level of +3 in September (albeit down from +7 the preceding month).

Retail sales growth slowed a little in August, as did price inflation. However, we think this had more to do with weather and discounting than any change in consumer behaviour, and the September inflation figure showed a slight rebound in prices, while the September BRC retail spending survey pointed to a 3.9% year-on-year rise in retail sales (2.6% LFL).

We expect this resilience to hold through the crucial Christmas and New Year trading season, whatever the noise or lack of it there is around Black Friday this year.

2016 will undoubtedly have its challenges for UK consumers and retailers, as the domestic and international economies are by no means out of choppy waters. There remains a wide spread in performance and confidence between the manufacturing and services sectors, and this has implications for the leaders and laggards in the regional economic recovery.

^{Source: Gfk}

A second challenge is the continued programme of welfare cuts, which are by no means as fast or deep as was hinted at in the election campaign, but will still drag on consumer spending in some markets more than others.

On the positive side, the inevitable rise in interest rates keeps on being pushed out amongst dovish noises from the MPC, and this bodes well for household spending in 2016.

We expect that by 2017 the rate of growth in household spending will slow from 3.0% to 2.0% per annum as rising interest rates combine with slowing GDP growth to limit consumer confidence and spending.