Consumer spend to slow in 2017 due to a 'perfect storm'

Consumer spend may be on the fast track, increasing at the fastest rate since the financial crisis, but this bubble stands to burst in the future as inflation and new austerity measures are introduces, warns forecasters.

According to a report from economic forecasting group EY Item Club, dropping food and fuel prices will see more consumers with extra money in 2016. Combined with low inflation and an increase in wages from the new national living wage scheme set to begin this April, consumer spend is predicted to grow by 2.9 percent this year. However, this spending boost is unlikely to last past 2016 as middle Britain will likely take the brunt of the "perfect storm."

Household incomes are predicted to slow to an average rate of 1.6 percent between 2017 and 2020, which is nearly half of the forecast of 3 percent this year. As inflation begin to grow whilst pay growth remain stagnant, consumers will find themselves caught in tougher times. "From 2017, a number of factors ranging from a pickup in inflation to cuts in welfare will create a 'perfect storm’ which will hit household income growth hard," said Martin Beck, senior economic adviser to the EY Item Club to the Telegraph.

"Low earners and older people will be spared from some of the drag, but the rest of the population will see growth in spending power slow sharply from the rates enjoyed recently."