British shops experienced the first annual drop in retail sales since early 2013 in October as increasing inflation and slow pay growth affect households in the pocket.
Retail sales are estimated to have dropped by 0.6pc as compared with that from October 2016.
On Thursday, official figures are set to reveal the full extent of the damage, compared to estimates of the consensus.
Inflation is believed to have grown to 3.1pc last October, its highest level since 2012.
At the same time, growth in average earnings is thought to have slowed to 2.1pc in the year to the third quarter, failing to keep up with prices and intensifying the pressure on household finances.
The rise in inflation breaks the target of the Bank of England, meaning that Mark Carney is set to write a letter to the Chancellor explaining why it is more than one percentage point away from the 2pc goal.
Carney did increase interest rates at the start of November in part to maintain a lid on price increases, so he will be able to demonstrate that action has been taken.
The said letter will be sent and published in December.
Factors that are raising prices up include the hike in bills of British Gas, the conclusion of the supermarket price war, higher oil prices driving up airfares, and the last of the effect of the drop in the pound increasing the cost of imports.
“This should be inflation’s peak,” stated Alan Clarke at Scotiabank, an economist who forecasts an even higher rate of 3.2pc.
“We’ve gone from [retail sales growth] of 5pc or 6pc per year, steadily down and down as real households’ real take-home pay growth has been crushed – it has gone from about 4pc year on year to zero now. It may be a little bit surprising we haven’t hit zero [retail growth] until now.”
While inflation begins to fade at the end of 2017 and early into next year, companies will hold their yearly pay rounds.
An economist at BNP Paribas, Dominic Bryant, expects that the recent high level of inflation should encourage more firms to increase salaries.
“The two things that will bring about a bit more wage growth in the UK next year are some resolution around the uncertainty on Brexit – do we get a transition deal in the early months of next year which would reduce some of the companies’ caution,” said Bryant.
“And the other one is that inflation will have been higher for longer by then which should encourage higher wage demand from employees given the unemployment rate is low. It does not happen instantly, but I think it will happen through the course of next year.”