Good start to the festive season

There has been no sign of a let-up in the strong pace of high-street spending growth at the start of the festive season. But it seems doubtful that spending will maintain its recent strength in the New Year. For a start, inflation will probably breach the 2% target in just four months’ time, peaking at about 3% in early 2018. And the labour market looks set to weaken, suggesting that nominal pay growth will struggle to keep pace with rising inflation, squeezing real incomes. Nonetheless, given supportive credit conditions, we don’t think a sharp slowdown in spending growth is on the cards. We expect spending growth to only slow from 2.8% in 2016 to about 2.0% in 2017 and 1.5% in 2018.