UK consumers are spending more, rents are rising more slowly, and US inflation is easing, but is this economic bounce sustainable? And what does it mean for your finances and the wider economy?
🇬🇧 UK Retail Sales Hit Highest Level in Three Years
UK consumers gave economists a pleasant surprise in September. Retail sales volumes rose by 0.5% month-on-month, the fourth consecutive increase, bringing activity to its highest level since mid-2022. Economists had expected a small fall, given sluggish economic growth and persistent cost-of-living pressures. But once again, the British consumer has proven resilient.
The rise was driven by strong sales in telecommunications, particularly following the launch of Apple’s new iPhone, alongside a boost in online spending. While one-off factors like product launches can inflate figures temporarily, they also reveal that households are still willing to spend when motivated, a sign that consumer confidence may be stabilising.
With Christmas fast approaching, retailers are hoping this momentum carries into the final months of the year. Yet, questions remain over how sustainable the recovery is. Wage growth has slowed, savings built up during the pandemic have largely been depleted, and higher borrowing costs continue to squeeze disposable income. September’s data offers a welcome reprieve, but it may reflect a short-term bounce rather than a long-term revival. The upcoming months will be crucial in determining whether consumer spending is truly turning a corner, or simply temporarily spiking.
Easing Rent Growth Offers Rare Relief
There are growing signs of relief in the rental market. Data from the ONS shows private rents rose by 5.5% in the year to September, still high, but slightly slower than August’s 5.7%. It’s the ninth consecutive month that rent inflation has eased, suggesting the intense upward pressure seen through 2023 is finally starting to cool.
For younger adults and renters who’ve shouldered much of the cost-of-living burden, this slowdown is significant. While food and transport prices remain elevated, even marginal relief in rent growth helps stabilise household budgets. It could also signal that housing demand is softening as affordability limits are reached, with many potential buyers and renters hitting a ceiling on what they can pay.
The question now is how policymakers respond. With the Budget on the horizon, the government may look to housing measures to support affordability and mobility, such as stamp duty adjustments or incentives for new rental supply. Slower rent inflation could ease headline CPI slightly, giving policymakers more breathing space. However, if the cooling trend stems from weakening demand rather than improved supply, it may point to broader economic fatigue rather than genuine progress on housing pressures.
🇺🇸 US Inflation Cools, and Markets React
Across the Atlantic, fresh data showed US inflation came in lower than expected in September, reigniting hopes that the Federal Reserve could begin cutting interest rates sooner than anticipated. Core inflation, which strips out volatile food and energy prices, continued its steady decline, suggesting the Fed’s aggressive tightening cycle is finally having the intended effect.
Financial markets responded swiftly. Wall Street rallied on the news, with major indices climbing as investors priced in the possibility of rate cuts in early 2026. Treasury yields also dipped, reflecting expectations of looser monetary conditions ahead. For the US economy, this could help sustain a soft landing, where inflation falls back without triggering a major recession.
A lower US inflation path also helps stabilise global markets by strengthening investor confidence and easing the dollar’s dominance. The ripple effects extend beyond American borders. UK markets often take cues from US monetary policy, and the FTSE 100 responded with a record high. Faster-than-expected easing by the Fed could put additional pressure on the Bank of England to follow suit, which would present a welcome fall in borrowing costs and continued improvement in market sentiment. However, the BoE must consider the fact that US inflation has been a lot less stubborn than Britain’s.
💼 Unpacked
Consumer Confidence Index – A measure of how optimistic or pessimistic consumers are about the health of the economy. Sentiment is hugely important as shifts can have a multiplier effect. Low confidence can lead to less spending, resulting in falling growth, and falling confidence.
Seasonal Adjustment – When economists adjust data to remove seasonal or holiday effects. Periods like Christmas or the summer holidays can provide false signals, so this must be accounted for to get accurate data.
FTSE 100 – An index of the 100 largest publicly traded companies listed on the London Stock Exchange. It’s often used to show the overall health of the UK stock market, though many of these companies do business around the world.
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