Higher inflation starts to bite

There are growing signs that the post-referendum strength in consumer spending is beginning to fade. With CPI inflation set to pick up to around 3% by the end of this year, growth in households’ real wages is likely to slow considerably which could further slow spending. But employment surveys suggest that jobs growth should remain fairly steady. And with confidence remaining high by past standards and ultra-low interest rates to persist for a while longer, we continue to think that spending growth will moderate from about 2.8% in 2016 to 1.8% in 2017, rather than collapse outright.