Consumer spending growth will slump to a four-year low as households feel the pinch from inflation, welfare cuts and weaker earnings, a report has said.
Real consumer spending is expected to eke out its weakest rate since 2013, rising 1.7% this year compared to a 12-year high of 3.1% in 2016, according to the EY Item Club.
The economic think tank said people on low incomes will take the biggest hit, with inflation forecast to reach a five-year high at 2.8% this year, while growth in real earnings sinks to 0.1% from 1.8% in 2016.
Martin Beck, senior economic advisor to the EY Item Club, said it will be another two years before earnings growth picks up again.
He said: “Higher inflation will be the key culprit in the sharp slowdown in consumer spending growth this year, cutting off what has been an all-too-brief revival in real pay growth and continuing the dismal picture for real earnings seen since the financial crisis.
“There should be some improvement in 2018, as inflation begins to cool, but even then we anticipate real wage growth of just 0.7%.
“It is likely to…