End of real wage squeeze boosts spending

Prospects still look bright for further solid growth in consumer spending. Admittedly, weaker growth in house prices and the looming prospect of interest rate hikes may soon dampen consumers’ spirits. But a combination of low inflation, further strong gains in employment and the end of the real wage squeeze should ensure that households’ real disposable incomes grow strongly over the coming year or so. Accordingly, we think that the recovery in spending could gather a little momentum and expect growth in real household spending to pick up from 2% this year to about 2.5% in both 2015 and 2016.