A poor quarter on the high street in Q1 suggests that the slowdown in consumer spending growth is gathering pace. Moreover, with the full impact of the forthcoming rise in inflation yet to be felt, this slowdown should have further to run. But we don’t expect spending to collapse completely. A repeat of the erosion of households’ spending power seen after sterling’s last major fall in 2008, when the rise in inflation was exacerbated by rising commodity prices and VAT hikes, seems unlikely. And rising inflation may make it harder for firms to limit pay rises. As such, we don’t think that spending growth will slow too dramatically. Our forecast is for consumer spending growth of 2.0% in 2017 and 1.5% in 2018, down from 2.8% in 2016.
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