Strong Q2 growth likely to be sustained

The recovery in consumer spending has shown few signs of flagging. Retail sales volumes were 1.6% higher in Q2 than in Q1, while growth in spending off the high street seems to have remained strong. Admittedly, the continued fall in real wages, recent decline in housing market activity and looming prospect of higher interest rates suggest that spending growth may ease soon. However, surveys point to stronger pay growth later this year, while housing market activity should begin to recover again now that lenders have adapted to new regulations. Meanwhile, the further rise in measures of confidence in June suggests that consumers are unperturbed by speculation that rates may rise soon. Accordingly, the recovery in spending seems unlikely to lose much pace in the second half of 2014.