Consumption is rebounding from the weather-related weakness in Q3, but wage growth and price inflation remain subdued. So far, employees appear to have been willing to sacrifice higher pay for greater job security. However, the improvement in employment prospects picked up by the main business surveys means that this caution is unlikely to last. We therefore expect the unemployment rate to average comfortably below 4% this year, and this should put further upward pressure on wage and price inflation. But with more people in work as well, real spending should also accelerate.
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