Real pay prospects improve

High-street spending put in a strong performance over Q3 as a whole, posting another chunky 1%-plus gain. Admittedly, retail sales have not been a particularly good barometer of overall consumer spending recently. Sales rose by a quarterly 2.0% in Q2, but total spending rose by just 0.4%. And non-retail spending appears to have remained subdued in Q3. Car sales, in particular – which have been heavily affected by supply issues due to new EU emissions tests – dropped by a whopping 12% on the quarter (on a seasonally-adjusted basis). As such, it seems likely that consumer spending growth weakened in the third quarter. But with a sustained rise in real pay now in prospect, we continue to expect a gradual consumer recovery ahead. In our base case – which is based on a Brexit deal being struck – we forecast a pick-up in annual spending growth from its current rate of 1.6% to 2% in 2020.