Pick-up in spending will be difficult to sustain

While consumer spending has shown some signs of life in the first part of this year, the momentum will be difficult to sustain. Although some of the measures announced by the Chancellor in the Budget, such as the cancellation of the fuel duty rise, will support spending, this year will still see an intensification of the fiscal squeeze. And recent developments have darkened the outlook for inflation and therefore imply that the squeeze on real pay is likely to persist until early 2014. As a result, real household spending still looks set to do no better than stagnate this year.