Spending growth holding up despite real pay squeeze

With CPI inflation set to reach just over 3% later this year and pay growth still subdued, the squeeze on real earnings growth should intensify as the year progresses. But the news that spending on the high street rebounded in April after the poor start to the year and that employment growth has continued apace, supports our view that spending growth will only slow gradually rather than collapse outright. As such, our forecast is for consumer spending growth of 2.0% in 2017 and 1.5% in 2018, down from 2.8% in 2016.