Financial services giant PwC has become the latest firm to warn that UK consumer spending is set to slow this year due to rising inflation and Brexit-related uncertainty.
Real consumer spending growth will moderate from around 3% in 2016 to around 2% in 2017 and 1.7% in 2018, according to PwC’s latest analysis, which says the impact of Brexit on consumers will also vary by category of spending.
In an extract from its ‘UK Economic Outlook’ report, which launches in full next week, PwC says consumer spending is currently the single most important driver of UK economic growth. Household spending has grown on average by 2.4% per annum faster than inflation over the past four years, propelling the overall UK economic recovery both before and after the Brexit vote. PwC says this has been reflected in rising employment levels, continued historically low interest rates, and a declining household savings ratio, driven by higher borrowing and a strong housing market.
John Hawksworth, chief economist at PwC, said: “Real household income growth is expected to slow in 2017-18 as rising inflation squeezes spending power. Increased borrowing may help fill the gap in the short term, but there are limits to how far UK consumers can continue to live beyond their means with spending rising faster than disposable incomes.
“We therefore expect consumer spending growth to moderate over the next couple of years as higher inflation and Brexit-related uncertainty start to bite.”
PwC’s report also analyses some potential impacts relating to the weaker pound and possible changes in migration policy after the UK leaves the EU.
Barret Kupelian, senior economist at PwC, commented: “Clothing and food sectors are potentially most exposed to the fall in sterling due to their high reliance on imports. In addition, the retail, hotel and restaurants sectors, together with food production and processing and construction, could be most vulnerable to any significant restrictions on EU workers coming to the UK after Brexit.
“Such sectors need to start making plans now both to help existing EU workers to register as UK residents where possible, and to consider other options like expanding recruitment and training of UK nationals.”