Improvement continues, but from weak starting point (Jul 09)

The consumer sector is sharing in the improvement seen in the wider economy. That said, this simply means that consumer spending is probably falling at a slower rate than before, rather than rising strongly. What’s more, the recent recovery could soon lose momentum. The deteriorating labour market is increasingly weighing on household incomes. And even if a fiscal tightening is still some way off, the expectation of future tax rises could pull down consumer confidence. We still expect consumer spending to fall again next year. Meanwhile, the divergence between spending on and off the high street has continued, with the good weather helping to boost retail sales in June. In the very near-term, it is hard to see what will bring this resilience in the retail sector to an end. But we expect it to be fading before the year is out.