The MPC's Paul Fisher is reportedly "nervous and worried" about UK consumer prospects. Given the Committee's forecasting record, it will be no surprise if consumer indicators rebound over coming months.
Consumer spending weakness, of course, has been mostly due to surging prices, for which the MPC bears significant responsibility. The first chart compares three-month growth of retail sales value and volume. Value expansion has remained solid over the winter and spring, with a volume decline explained by the inflation spike.
Slumping consumer confidence and downward pressure on real household disposable income may be yesterday's story. Real income should recover in 2012, reflecting recent higher pay settlements, a mechanical drop in inflation, further employment gains and a reduced drag from fiscal tightening.
Consistent with confidence bottoming, households were less pessimistic about their finances in May, according to the monthly Markit survey – current and future indices were at their best levels since January. Retailing shares, meanwhile, have outperformed the market by a further 7% over the last month. The recent fall in oil prices, if sustained, promises some relief to strained budgets – second chart – while Which? estimates that payment protection insurance compensation will transfer £7.9 billion from banks to consumers, equivalent to 0.8% of annual disposable income.
