Recovery in spending temporarily slows

Households are continuing to see substantial increases in their purchasing power. Annual growth in average weekly earnings (excluding bonuses) picked up from 2.8% to 3.2% in July, well above that months near zero-rate of CPI inflation. And the UK looks odds on to experience another short period of “good” deflation, given the fall-back in the oil price and the cut to gas prices announced by British Gas. Granted, households face a re-intensification of the fiscal squeeze. But they look better placed to deal with another bout of austerity than they did in 2010. And renewed fiscal consolidation underlines that interest rates are going nowhere fast. Accordingly, we remain optimistic about the prospects for the consumer recovery for the rest of this year.