Consumers remain resilient despite pay squeeze

There has been little let up in the squeeze on consumers’ finances. But until now, at least, the consumer has been showing impressive resilience, with high-street spending having grown strongly over the last two quarters. Admittedly, growth in retail sales (which only accounts for about a third of total spending) has not been a particularly good barometer of total household spending – which increased by just 0.1% on the quarter in Q2. But a large part of the slowdown reflected a shift in car purchases from Q2 to Q1 to beat April’s rise in Vehicle Excise Duty. And our seasonally-adjusted measure of car registrations suggests that car purchases will not exert as big a drag on spending growth in Q3. As a result, consumer spending growth looks likely to register a modest pick-up in Q3. And as the inflationary effect of sterling’s fall dwindles from next year, there should be scope for spending growth to re-accelerate further.