Consumer spending growth expected to slow: PwC

Consumer spending growth is expected to slow as rising inflation and Brexit-related uncertainty start to take effect, according to a report.

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 in the long run.

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 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."

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 restaurant 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."