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U.K. Consumer Spending to Slow Sharply in Coming Years, PwC Says

  • Expenditure to moderate as higher inflation, uncertainty hit
  • Housing and utilities spending to rise amid income squeeze

U.K. consumer spending growth will weaken for years to come after slipping to about 2 percent this year from 3 percent in 2016, PricewaterhouseCoopers LLP said.

Spending, which accounts for more than two-thirds of U.K. gross domestic product, will slow further to 1.7 percent in 2018 as income gains fail to keep up with inflation, according to a report by PwC published Friday. It forecasts that housing and utility spending could account for just under 30 percent of household budgets by 2030, up from about 25 percent last year, forcing Britons to cut back on non-essentials.

“Increased borrowing may help fill the gap in the short term, but there are limits to how far U.K. consumers can continue to live beyond their means with spending rising faster than disposable incomes,” said John Hawksworth, chief economist at PwC. “We therefore expect consumer spending growth to moderate over the next couple of years as higher inflation and Brexit-related uncertainty start to bite.”

PwC says the food and clothing sectors, which are heavily reliant on exports, are most exposed to the pound’s 18 percent drop against the dollar since Britain’s vote to leave the European Union. Hotels, restaurants, manufacturing and agriculture also look set to face challenges due to their dependence on labor from the EU, it said.

Brexit will also hurt business investment, according to a separate report by the Institute of Chartered Accountants that said it will shrink by 1.9 percent this year. Real wages will decline for the first time since 2013, it said.

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