The labour market’s recent deterioration threatens to nip the nascent recovery in consumer spending in the bud. Employment has begun to fall again and the forward-looking surveys suggest no imminent improvement. Meanwhile, pay growth has ground to a halt. Although the recent fall in oil prices has brightened the inflation outlook somewhat, the squeeze on real earnings is still set to intensify unless pay growth picks up soon. As a result, while consumer spending appears to have made a good start to 2013, we have our doubts that this momentum will be sustained.
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