“A reliable Bank of England survey adds to other evidence that pay growth will remain soft in 2017,” Wood said. “Sterling’s fall means inflation will pick-up, probably exceeding 3% later this year. Consumers spending power will be squeezed in our view. Other recent evidence has pointed to souring consumer sentiment. We should be cautious: one month does not make a trend. The moves are notable nonetheless. The robust picture for consumer finances since June could be about to sour pretty quickly.”
“The BoE continues to forecast an improvement in pay growth after having been over-optimistic for the past three years and despite the reliable part of its pay survey pointing to slowing pay growth,” Wood continued. “It seems to us that the BoE will likely be disappointed and the squeeze on real incomes will be worse than it expects.”
As sure as night follows day there will be a big sell-off in UK equities again at some point. The question for investors is whether this will be a 2017 event, or something that is much further down the line.
