Real earnings growth starting to be squeezed

With CPI inflation picking up quite quickly and nominal wage growth remaining subdued, households are already facing a squeeze on growth in their real incomes. Indeed, there are some signs that it is already contributing to a slowdown in spending growth. Nonetheless, favourable credit conditions, strong confidence by past standards and record levels of employment should ensure that spending growth slows, rather than collapses over the course of this year. National Accounts data showed that real household spending continued to grow at a steady pace in the fourth quarter of last year, increasing by 0.7% q/q. That saw consumer spending up by 3.1% y/y in 2016 as a whole, marking the strongest expansion since 2004.