Consumer spending growth to slow in 2017-18, but Brexit impact will vary by sector - PwC

Real consumer spending growth will moderate from around 3 per cent in 2016 to around 2 per cent in 2017 and 1.7 per cent 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 the UK Economic Outlook, which launches in full on 21st March 2017, PwC says consumer spending, which accounts for more than two thirds of UK GDP, is currently the single most important driver of UK economic growth.

Household spending has grown on average by 2.4 per cent 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.”

Looking further ahead, PwC’s new analysis suggests that households could spend just under 30 per cent of their budget on housing and utilities by 2030, up from around 25 per cent in 2016.

Spending on financial services and personal care services will also tend to increase relatively rapidly over time, while the share of total spending on food, alcohol and tobacco, and clothing will tend to decline in the long run.

Brexit will add an additional layer of uncertainty to consumer spending projections, but PwC has analysed 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, said: “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 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.”