Consumer

Jennifer Ryan is a Bloomberg Gadfly editor. She previously reported on economics and corporate finance for Bloomberg News in London and New York.

Elaine He oversees Bloomberg Gadfly's data visualization work in Europe and also pursues her own columns combining business and markets coverage. Before joining Bloomberg, she was a graphics editor at the Wall Street Journal and the New York Times.

This is as good as it gets (probably). After splashing out this holiday, U.K. consumers are in for a spot of belt-tightening. And it's not just a January exercise plan to burn off the extra pie. Faster inflation and potentially weaker wage growth will dampen dreams of a bit of retail therapy.

Here Comes the Squeeze
The current run of U.K. consumers' spending power, with pay growth outpacing inflation, is set to end next year, according to the latest OBR forecasts
Source: U.K. Office for Budget Responsibility
Forecasts start in Q4 2016

A closer look at the prospects for salaries isn't good. Britain's vote to leave the European Union is set to weigh on growth prospects and the public finances.

20161221_inflation_income

The pound's fall has already raised both import costs and charges at the factory gate for all kinds of manufacturing, which means pipeline inflation pressures are also building.

Brexit's Double Hit to Factories
The pound's nosedive after the June referendum completely skewed inflation for input price growth, raising prospects of a margin squeeze as output price growth proves slower to respond.
Source: U.K. Office for National Statistics

Consumers have a bit of room to fight back: they can trade down from costly name brands, for example. And factories have myriad ways to alter products. But that's all on the margin. Faster inflation has to hit somewhere, and in some way, somehow, it'll land on your doorstep in 2017.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Jennifer Ryan in London at jryan13@bloomberg.net
Elaine He in London at ehe36@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net