Households well placed to step up spending

While the uncertainty caused by Brexit is hampering consumption, households’ finances are fundamentally sound. Indeed, with earnings growth at a decade-high in December and inflation below its 2% target, households are now enjoying the first sustained period of decent rises in their real wages since the financial crisis. This suggests that once the uncertainty around Brexit clears, consumers will have both the ability and the willingness to boost spending. If a deal on Brexit is reached in the coming months, we expect consumer spending growth to accelerate in late-2019 and to reach 2% in 2020. In a no deal Brexit, we suspect that sentiment would deteriorate and households would struggle with the uncertainty and the economic disruption, which would cause spending growth to fall to zero this year. But households would probably only have to endure a short period of lower incomes before real wages and employment started rising again. As a result, spending may still grow by 1.0% in 2020.