The likely sharp fall in overall consumer spending in Q1 probably marks the low-point during this downturn. After all, the consumer sector has shared in the tentative signs of improvement, or at least stabilisation, seen in the economy as a whole recently. However, we still think that this consumer downturn has much further to run. The recent boost to household income growth from lower mortgage payments is fading, while the drag from rising unemployment and pay freezes is building. In addition, credit conditions remain tight, while the saving rate looks too low. We still expect spending to keep falling this year and next. Meanwhile, the recent outperformance of the retail sector has been somewhat puzzling. While we would not rule out further resilience in the near-term, we would not be surprised to see sales growth ease back, narrowing the gap with spending off the high street.
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