Consumer spending will have plunged this month

A sharp rise in consumer spending in the run up to the 1st October sales tax hike will almost certainly be followed by a plunge in consumption this month. However, on a quarterly basis the swing in spending is likely to be more muted than around previous tax hikes. While Nowcast’s timely measure of consumer spending points towards a surge in consumer spending in September, the cumulative level of front loading still appears much smaller than in the quarter before the 1997 and 2014 tax hikes. Indeed, the Cabinet Office’s broader measure of private consumption which has data until August displays no sign of consumers front loading their purchases at all up to that point. We are forecasting a 1.7% q/q fall in private consumption this quarter which would be smaller than the falls observed after the two previous tax hikes.