The recent strength of high street spending has been impressive, but we may now be seeing the first signs of a slowdown. Even if the resilience lasts a bit longer, the outlook for next year looks pretty bleak. Not only is unemployment still rising and pay growth slowing, but both Labour and the Conservatives are now talking about how to cut government spending sharply. Even if these cuts are some way off, the prospect of spending cuts (and tax rises) could dent consumer confidence more immediately. As for conditions off the high street, the car scrappage scheme is giving a significant boost to new car sales, but these account for just 1% or so of total consumer spending. We continue to expect overall consumer spending to drop further next year before rising only sluggishly for several years thereafter.
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