The British Retail Consortium (BRC) retail sales monitor for September (out overnight on Monday/Tuesday) is expected to show firmer retail sales compared to August. The consensus is for total retail sales to have risen 3.0% year-on-year in September, following an increase of 2.2% year-on-year in August. On a like-for-like basis, retail sales are seen rising 0.9% year-on-year in September, after edging down 0.1% year-on-year in August. The Confederation of British Industry has already released its distributive trades survey for September, which showed that the balance of retailers reporting that their sales volumes were up year-on-year jumped to +3% in September from -16% in August, and an average level of -22% for the first eight months of 2009.

Low mortgage payments, reduced utility bills, and easing inflation are boosting the purchasing power of a good many people, thereby giving them scope to step up their discretionary spending. Even so, the suspicion remains that the upside for consumer spending will be limited for some time to come, as consumers still face serious obstacles. These notably include substantially higher and rising unemployment, low earnings growth, and heightened debt levels. Furthermore, many consumers are keen to limit their expenditure due to still serious concerns about the economy and their jobs, as well as a need/desire to improve their personal finances. This was reflected in the household savings ratio jumping to 5.6% in the second quarter from 3.9% in the first. Significantly, the Bank of England has identified the need for consumers to improve their balance sheets as a major factor that could hold back economic recovery. Furthermore, Value-Added Tax (VAT) will rise back up from 15% to 17.5% in January; although, this could well lift retail sales at the end of this year, as consumers look to beat the VAT hike. Sales of big-ticket items seem particularly likely to rise ahead of January's VAT hike.

The housing market survey for September from the Royal Institute of Chartered Surveyors (also out overnight Monday/Tuesday) is expected to show that housing market activity is still trending up, but at a reduced rate. The survey is likely to reveal that buyer enquiries increased for an 11th month in a row in September, but at a slowing pace. This is expected to feed through into a sixth successive rise in completed sales per surveyor, although these will highly likely still be well-below long-term norms. Of particular interest will be whether or not the number of properties coming onto the market is rising due to vendors being attracted by recent firming prices. There was some evidence of this in the August survey. The balance of surveyors reporting that house prices increased over the previous three months is expected to have climbed to +15% in September from +10.7% in August, which was the first positive balance for two years.

Meanwhile, the consensus is for the Department for Communities and Local Government's house price index (out on Tuesday) to show that the year-on-year fall in house prices moderated to 5.8% in August from 8.3% in July, and the peak decline of 13.6% in March.

Buyer interest has been lifted appreciably by the sharp overall fall in house prices from their autumn 2007 peak levels and very low mortgage interest rates. This has been gradually but steadily feeding through to lift housing market activity. Furthermore, house prices are currently being supported by a lack of properties for sale. Nevertheless, housing market activity is still muted compared to long-term norms, while credit conditions remain tight and economic fundamentals are still far from favourable for the housing market. Consequently, we suspect that house prices are likely to suffer relapses over the coming months, despite their current firmer tone.

Consumer price inflation data for September (out Tuesday) are likely to show a final fall in the annual rate of inflation from the September 2008 peak level of 5.2%. Specifically, we expect annual consumer price inflation to have moderated to a near five-year low of 1.3% in September from 1.6% in August reflecting still favourable base effects as the lagged impact in September 2008 of oil prices reaching a record high of US$147/barrel in July 2008 drop out of the calculation. This is likely to prove the floor in annual consumer price inflation, as oil prices fell back very sharply in the final months of 2008 and in early 2009, which means that base effects will be unfavourable over the coming months. Furthermore, Value-Added Tax was cut from 17.5% to 15.0% in December 2008, but will rise back up to 17.5% in January 2010, which will push the annual inflation rate up from this December. Finally, sterling's weakness is likely to have some further upward impact on inflation in the near term at least. Consequently, annual consumer price inflation is likely to rise temporarily back above the Bank of England's 2.0% target at the end of 2009 and in early 2010. We believe that annual consumer price inflation will still be under 2.0% for most of 2010, as substantial excess capacity, only gradual recovery, high unemployment, and a bottoming out in sterling have a dampening impact.

Meanwhile, core consumer price inflation is seen edging down to 1.7% in September from 1.8% in August. In addition, annual underlying retail price inflation is expected to have moderated to 1.3% in September from 1.4% in August. The year-on-year decline in retail prices is seen widening modestly to 1.4% in September, from 1.3% in July, with deflation driven by mortgage interest payments still being much lower than a year ago.

Data out on Wednesday are expected to reveal that unemployment is still rising pretty sharply on the International Labour Organization (ILO) measure. At least though, the rate of increase is likely to have moderated appreciably compared to the very large jumps seen a couple of months ago. We believe that this measure is giving a truer reflection of the labour market than the narrower claimant count measure. In particular, there are likely to have been a lot of students who left college or school at the beginning of the summer who could not get a job and therefore went straight into unemployment. These people do not show up on the claimant count data as they are not eligible for benefits.

Indeed, the number of people unemployed aged under 25 could well have now reached one million, as it stood at 947,000 in May-July. This highlights the very worrying problem that youth unemployment is becoming.

Overall, we expect the rise in the number of unemployed on the ILO measure to have slowed to 140,000 in the three months to August from 210,000 in the three months to July; 220,000 in the three months to June; and a peak of 281,000 in the three months to May. Even so, this would take the number of unemployed on the ILO measure above 2.5 million and push the unemployment rate up to 8.0%.

Unemployment still looks likely to reach three million in the latter months of 2010, and it could go higher. Although the economy could well have stopped contracting in the third quarter, unemployment is a lagging indicator and the sharp overall economic contraction suffered between the second quarter of 2008 and the second quarter of 2009 will continue to weigh down on the labour market for an extended period. Furthermore, even if the economy did return to growth in the third quarter, activity is still unlikely to be strong enough for some considerable time to come to prevent further net job losses. In fact, we suspect that unemployment will rise for the rest of this year and much, if not all, of 2010. Meanwhile, we expect claimant count unemployment to have risen by 25,000 in September, which would be similar to the increases of 24,400 in August and 25,200 in July. This would take unemployment on this measure up to 1.63 million and the claimant count unemployment rate up to 5.0%.

Average earnings are expected to have risen by just 1.5% year-on-year in the three months to August as they were limited by reduced bonus payments. Furthermore, underlying average earnings are under serious downward pressure from substantially higher and rising unemployment, elevated job insecurity, negative retail price inflation, and the need for companies to contain their costs in the face of still-muted demand and reduced profitability. Consequently, annual underlying average earnings growth (excluding bonus payments) is seen moderating appreciably to 1.8% in the three months to August, which would be the lowest level since the series began in 2001. These rates are substantially below the 4.5% level that the Bank of England considers broadly consistent with its 2.0% consumer price inflation target. Meanwhile, high and rising unemployment and muted wage growth are likely to limit the upside for consumer spending over the coming months.

13 Oct—British Retail Consortium Monitor Total Sales, September (Year-on-Year): not forecast
13 Oct —British Retail Consortium Monitor Like-for-Like Sales, September (Year-on-Year): not forecast
13 Oct—RICS House Price Balance, September: +15%
13 Oct—DCLG House Prices, August Year-on-Year): not forecast
13 Oct—Consumer Price Inflation, September (Month-on-Month): +0.3%
13 Oct—Consumer Price Inflation, September (Year-on-Year): +1.3%
13 Oct—Core Consumer Price Inflation (ex Food, Drink, Tobacco), September (Year-on-Year): +1.7%
13 Oct—Retail Price Inflation, September (Month-on-Month): +0.4%
13 Oct—Retail Price Inflation, September (Year-on-Year): -1.4%
13 Oct —Underlying Retail Price Inflation, September (Month-on-Month): +0.4%
13 Oct —Underlying Retail Price Inflation, September (Year-on-Year): +1.3%
14 Oct—Claimant Count Unemployment Rate, September (%): 5.1%
14 Oct—Claimant Count Unemployment Change, September (000s): +25K
14 Oct—International Labour Organization Unemployment Rate, August (%): 8.0%
14 Oct—Average Earnings including bonus, August (3-Month/Year): +1.5%
14 Oct—Average Earnings excluding bonus, August (3-Month/Year): +1.8%