High street's resilience starting to fade? (Jun 09)

Consumer spending looks unlikely to keep falling at such a sharp rate as the 1.2% drop seen in Q1. After all, it now looks like the overall economy could be out of recession as soon as Q3, or even the current quarter, and given its 65% or so weight in GDP, consumer spending must be driving at least part of that improvement. However, major drags on consumer spending either remain or are yet to come into play, namely weak bank lending, rising unemployment and rising taxes. Admittedly, spending no longer looks likely to fall as sharply as we previously thought (3.5% this year and 1.5% next year). Nonetheless, we still expect falls of around 3% this year and a further 0.5% in 2010. We expect the retail sector to share in this weakness, with its recent respite proving only temporary.