UK household consumption likely to grow less in 2016

UK private consumption grew by 0.7% q-o-q in the second quarter of 2015 and consumption is expected to continue to grow in the second half of the year. Households still profit from past nominal wage increases and low commodity prices. The increase in consumer confidence in August supports the expectation of continued real household spending in the third quarter. 

That said, the survey was conducted between August 1 and August 15, and therefore does not include the possible effects of the recent financial market turmoil due to China's devaluation and disappointing economic growth figures. But since the relationship between consumer confidence and equity prices is relatively weak, the recent turmoil will probably have limited impact on household consumption. 

"For 2016, we expect a slowdown of households' spending growth as inflation will probably increase, unless commodity prices decrease even further", notes Rabobank.

Furthermore, employment growth will probably slow down, as the catching-up after the financial crisis is coming to an end. Indeed, unemployment, 5.6% in May, is getting close to its natural rate, with the OECD estimating the NAIRU for 2015 at 5.4%