Our Special Report on Consumer Spending shows growth has more than halved to 1.4% in 2017 from 2.9% in 2016 - the smallest increase since 2011.
Following a difficult year, 2018 offers some reasons for optimism for UK consumers, as we forecast falling levels of inflation and a modest revival in pay growth. However, good news will be offset by challenges including weaker employment growth, rising interest rates and more reluctance among consumers to ‘live beyond their means’.
While we expect a steady improvement in spending power for the average household from this year onwards, fortunes are likely to diverge across the various income groups.
Consumers in the lowest income decile will see their take home pay grow 5% this year, while higher earners in the 90th income decile will see growth of 3.2%. In contrast, those in the median income decile will see their take home pay increase by just 2.9% this year.
The dominant role played by consumer spending in the economy - representing just under 65% of GDP - will inevitably have a big impact on UK growth.
For the full findings on UK consumer spending, download our report.
- 2017 delivered a 1.4% rise in consumer spending, less than half the 2.9% recorded in 2016 and the smallest increase since 2011.
- We forecast consumer spending to grow by 1.3% in 2018 and then 1.6% in 2019.
- In 2020 we expect both income and spending growth to climb to around 2% per year, in line with the average achieved since 2000.
- Having risen only 0.2% in 2017, we anticipate real income growth to pick up to 1.2% this year, followed by 1.7% in 2019.
- We expect Consumer Price Index inflation to slow to an average of 2.5% in 2018, with the rate down to 2.1% by the end of the year.
We are going to see stable but sluggish growth in consumer spending this year with little prospect of achieving the levels achieved in 2016 . While the impact of higher inflation should slowly fade, the UK consumer will be hit by new issues which will impact their spending power."