EY ITEM Club has forecast that Britain will see the slowest growth in consumer spending in 2019 in six years. It said it expects spending to rise by 1.6% over last year, although that would be faster than an estimated 1.3% growth in the broader UK economy in 2019. Consumer spending benefited from robust employment growth and a strong pick-up in real earnings growth in the second half of 2018 and early 2019 but the outlook was now weaker, the economic forecasting group said.
“The improvement in purchasing power has meant that consumers have been significantly less affected in their spending decisions than businesses by uncertainties over the economy and Brexit,” said Howard Archer, chief economic advisor to the EY ITEM Club, which produces quarterly UK economic forecasts. “While consumer confidence in late 2018/early 2019 weakened to the lowest level since mid-2013, perceptions of personal finances and a willingness to spend generally held up much better than views of the economy.”
The forecaster said it suspected earnings growth peaked in early 2019. It was likely to remain modestly below that level over the rest of 2019 and possibly beyond. It said strength in the labour market would increasingly fray over the coming months as companies tailored their behaviour to a lacklustre domestic economy, prolonged Brexit uncertainties, an unsettled domestic political situation and a challenging global environment.
As a result, it forecast employment growth would slow to 1% in 2019 and 0.6% in 2020, from 1.2% in 2018. Slower growth in consumer spending will add to the pressures high street retailers face from changing shopping habits and more spending moving online.