Spending growth holding up well

Consumer spending growth is unlikely to maintain the strength seen since the referendum in the coming quarters. Real household incomes are likely to take a hit, with employment intention surveys consistent with a sharp slowdown in employment growth. What’s more, growing labour market slack should hold back wage growth and consumer prices will probably pick up sharply as the fall in the pound continues to make its way through the inflation pipeline. But supportive credit conditions should prevent spending from slowing too sharply, with past monetary loosening continuing to flow through to lower borrowing costs. Accordingly, we think consumer spending growth will only slow from 2.7% in 2016 to 1.5% in 2017 before rebounding to 2.0% in 2018.