The boost to consumers’ spending power from low energy prices is set to fade this year. What’s more, households face a big fiscal squeeze. And with unemployment nearing its natural rate, there is less scope for strong growth in employment to drive spending.
However, the further fall in oil prices since the start of the year and the recently-announced cuts to utility prices should mean the boost from low energy prices fades slowly. And households are better placed to deal with another bout of austerity than they were in 2010-11 when it first got going. So we think consumer spending growth will only slow from about 3% this year, to around 2.5% in 2016 and 2017.
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