Spending growth slowdown not too sharp

Consumer spending growth should slow in the coming few quarters as a result of a number of headwinds. Indeed, we expect the Brexit vote to cause some firms to put a halt on hiring decisions, slowing employment growth. This should result in a rise in labour-market slack and downward pressure on wages. What’s more, the recent fall in sterling should lead to a rise in inflation, eating into household spending power, and confidence has fallen since the vote. However, the slowdown shouldn’t be too sharp. For a start, confidence has rebounded since the initial post-referendum shock. And monetary and fiscal policy should both provide support relative to pre-referendum plans. Accordingly, we think consumer spending growth will only slow from 2.7% in 2016 to 1.5% in 2017.