Recent weeks have seen a couple of encouraging economic data points for investors betting on the resilience of the UK consumer.

Second-quarter GDP (gross domestic product) grew at a faster rate than expected, even as interest rates have risen, pushing up mortgage costs on top of rising food and energy bills.

Wage growth also surprised to the upside at 8.2% in the second quarter, a new record and well above the Bank of England’s forecast of 7.6%, although the unemployment rate crept up to 4.2% as the labour market starts to slacken. The wage growth number led to market volatility as it prompted fears inflation is becoming more entrenched, forcing the Bank to take a harder line on rates.

Meanwhile, despite the travails of Wilko, which were mostly self-inflicted, homewares seem to be enjoying a revival in sales even if the weather in July meant footfall on the high street was disappointing.

In an unsheduled trading update, Marks & Spencer (MKS) reported a 6% increase in like-for-like sales in its clothing and home division in the 19 weeks to 12 August, while homewares producer UP Global Sourcing (UPGS) posted a 15% increase in sales in the six months to 31 July, despite not raising prices, with online sales booming.

Mark Barnett, fund manager at Tellworth Investments, began increasing his exposure to consumer stocks in September 2022 on the basis valuations were ‘far too low’ and spending looked like holding up.

‘Despite much press commentary highlighting the wage squeeze combined with the pessimistic forecasts from the Bank of England and the IMF, the UK consumer has continued to spend and, actually is fundamentally in pretty good shape with strong cash balances, low levels of debt and, high levels of employment’ says Barnett.

‘These buffers have provided a cushion against the recent shocks and will act as a springboard for the eventual recovery. As I expect headline inflation to ease over the course of 2023, some growth in real wages is to be expected which in turn will fund increases in consumption and GDP.’

Barnett’s holdings include Dunelm (DNLM), Howden (HWDN), Next (NXT) and Whitbread (WTB).

Ken Wotton, managing director of public equities at Gresham House, agrees: ‘Concerns about the UK economy and understandable worries about the outlook for consumer discretionary spending in the face of inflation and increasing interest rates have driven consumer stocks to almost unprecedented lows.

Low ticket value-for-money experiential leisure and some areas of e-commerce look particularly good value.’

Wotton’s holdings include Angling Direct (ANG:AIM), Moonpig (MOON) and Ten Entertainment (TEG).

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