Consumers remain confident despite pay squeeze

The official data and survey evidence have been unequivocal in suggesting that the recovery in consumer spending has remained robust over the last few months. Admittedly, some of the existing supports to growth in consumer spending may fade soon. Employment growth has begun to slow from the stellar rates seen in the first half of 2014. And recent falls in shop prices as a result of the stronger pound which have supported real spending may not be sustained for long. Nonetheless, the reduction of slack in the labour market and some better signs on productivity growth suggest that real wages should start to recover around the turn of the year. Accordingly, we still think that consumer spending will rise by a solid 3% or so this year, 2.7% in 2015 and 2.5% in 2016.