LONDON: Growth in UK consumer spending is expected to grind to a halt by the start of next year as inflation continues ramping upwards. Latest projections from the National Institute of Economic and Social Research (NIESR) predict a peak of 3.4 per cent in consumer price inflation at the end of 2017, up from 2.3 per cent in the latest official figures.Consumer spending has been fuelling the economy since the recovery from the recession and economic activity is now expected to drift lower, with GDP growth of 1.7 per cent expected this year. Simon Kirby, head of macroeconomics at NIESR, said that will be followed by a slight improvement to 1.9 per cent in 2018. However, that still remains below trend. “GDP growth over the next couple of years will be subdued, growing at less than the economy’s long-run potential rate of 2 per cent per annum, but households will feel the pinch from rising consumer price inflation,” he said. “The rate of inflation is expected to rise from 2.3 per cent per annum in March to almost three and a half per cent by the end of 2017. By 2018 we expect consumer spending growth to have effectively stalled.”
NIESR expects the Monetary Policy Committee to look through what most economists agree is a temporary spike in inflation driven in large part by the falling value of the pound, leaving interest rates on hold 0.25 per cent until the middle of 2019. The think tank also observed that the labour market remains robust, with unemployment at 4.7 per cent and the employment rate among the working-age population at a record 74.6 per cent. However, real wage growth remains subdued, indicating that some slack remains.
