Spending growth remained subdued in Q2

The stronger-than-expected 0.7% monthly increase in retail sales volumes in July took the annual growth rate up from 2.9% to 3.5% and suggests that some recovery in consumer spending growth is in the pipeline. Online promotions gave a boost to non-store retailing and food stores benefited from the warm weather and World Cup celebrations. Of course, with real wage growth still weak, the positive news on the high street may come at the expense of weaker spending elsewhere, as was the case in Q2. But indicators suggest that pay growth will pick up later this year and the rise in inflation seems to have been primarily driven by higher oil prices, which we forecast will fall back ahead.