Falling inflation to offset drag on spending from rate rises

The outlook for consumer spending this year hinges on which proves to be dominant - higher interest rates or falling inflation. The boost to real income growth from falling inflation should offset the drag from higher interest payments, although the indirect effects of higher interest rates on the housing market should limit the extent of any spending recovery. We expect consumer spending growth to accelerate, albeit modestly, from 2% last year to 2.5% this year.