PWC, one of the ‘Big Four’ accounting firms, has released a report showing that consumers are likely to curb spending over the next two years as households adjust to the Brexit fallout. The report predicts that consumer spending growth would ease from 3 per cent in 2016 to about 2 per cent this year and 1.7 per cent in 2018, despite the fact that there has been no slowdown to date in the economy since the Brexit vote. PWC said that household spending was the single most important driver of economic growth and had expanded on average by 2.4 per cent faster than inflation over the past four years. The positive results over recent years have been supported by the robust housing market, rising employment levels (which hit a joint record high in January), record low interest rates (which were held by the Bank of England yesterday), and higher lending rates.
However, John Hawksworth, chief economist at PWC, said that rising inflation, triggered by the weak GB pound, was expected to squeeze consumer spending power: “increasing 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.” PWC expects the share of household budgets spent on food, alcohol, tobacco and clothing to decline in the long run, with an increasing proportion to go on personal care as well as housing and utilities. The latter is forecast to account for just under 30 per cent of budgets by 2030, up from about 25 per cent last year.