Consumers 'to rein in spending' as inflation and Brexit fears bite
Consumer spending growth is expected to slow as rising inflation and Brexit-related uncertainty start to take effect, according to a report today.
Growth is projected to slow from around 3% last year to around 2% this year and 1.7% next year, PwC said in its latest analysis.
Higher household borrowing could offset a slowdown in the short-term, but "there are limits to how far this can go" as spending may already exceed household disposable income this year, the report said.
Looking further ahead, households could spend just under 30% of their budget on housing and utilities by 2030, up from around 25% in 2016.
Spending on financial and personal care services will also tend to increase relatively rapidly over time, while the share of total spending on food, alcohol, tobacco and clothing will tend to decline long-term. In an extract from the UK Economic Outlook, which launches in full on March 21, PwC said 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 had grown on average by 2.4% per year faster than inflation over the past four years, propelling the overall UK economic recovery both before and after the Brexit vote.
PwC said 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.
PwC chief economist John Hawksworth 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."