Households are considerably better off than they were just a year or two ago. Indeed, the so-called “misery index” – a sum of the prevailing inflation and unemployment rates – has halved over the last three years and looks set to fall this quarter to its lowest rate since the late 1960s. Granted, the index does not take account of factors such as earnings growth, debt levels or austerity measures. But on all of those scores, conditions for consumers have improved too – annual growth in average weekly earnings has picked up, the share of disposable incomes taken up by debt interest payments has fallen to a record low and there has been a pre-election hiatus in the fiscal squeeze. Accordingly, we continue to think that the recovery will be led by consumers this year, with both real household spending and GDP rising by about 3%.
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