The recovery in consumer spending seems to be gathering pace thanks to rising confidence and strong employment growth. Admittedly, there are still signs of fragility – real earnings are still not rising and the housing market has shown signs of cooling even before any action from the Financial Policy Committee. Nonetheless, we continue to think that a recovery in real pay should finally get underway in the second half of this year as inflation eases further and the recent reduction of labour market slack slowly improves workers’ bargaining power. In addition, we suspect that housing market activity will pick up again before long as sellers are attracted into the market by high prices. As a result, we expect the foundations of the consumer recovery to strengthen soon.
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