Resilient consumer spending was the main reason why GDP growth held up so well in the wake of the Brexit vote. However, there have been signs that the exchange-rate induced rise in inflation is starting to hit real spending growth. Indeed, the expansion in household spending of 0.7% in Q4 was down from 0.9% in Q3. And the monthly fall in retail sales in January suggests that it has slowed further in Q1. The easing in spending growth appears to relate to higher inflation – which reached its highest rate since June 2014 in January – hitting real income growth. Indeed, squeezed consumer finances was cited as one of the factors behind the fall in the Markit/CIPS services PMI in February. Nonetheless, we think that rock-bottom interest rates and above-average consumer confidence should prevent household spending growth from slowing too sharply. Our forecast for spending growth in 2017 is 2.0%, down from the 3.1% outturn in 2016.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services