Consumer spending fragile ahead of fiscal squeeze (May 10)

Consumer spending has struggled to pick up again even though the various temporary factors weighing on spending earlier in the year have now disappeared. The consumer recovery may yet gain some momentum in the next few months. However, we remain concerned that consumer spending will struggle again later this year when the fiscal squeeze begins to bite. The new coalition Government has confirmed that reducing public borrowing will be its prime concern. And although the coalition agreement contained some tax cuts for consumers, tax rises such as an increase in VAT look likely to be announced in the forthcoming emergency Budget on 22nd June.