UK: Consumption to fall as disposable income dries up

After a difficult 2022 for UK households, we expect real income to fall 1.2% in 2023 due to a range of headwinds that will continue to buffet consumers in 2023.

What you will learn:

• Inflation is set to remain high, outpacing earnings again. Mortgage holders coming to the end of their fixed term deals face a large rise in debt servicing payments. Households will also be affected by the government’s decision to significantly tighten fiscal policy.
• So far, households have shown a marked reluctance to cushion the blow of falling real income by savings less or taking on further debt. We think the recessionary environment is likely to reinforce this behaviour. Therefore, we expect to see a large fall of 1% in consumption this year.
• But lower inflation next year should support a rebound in real income and consumer spending in H1 2024.