Australians may soon see two interest rate cuts, yet economic challenges are expected to persist, prompting them to continue being cautious with their spending.

A recent report by Oxford Economics highlights concerns over slow employment growth and sluggish business investment, factors anticipated to strain the country’s financial landscape. Despite these hurdles, Australia is still forecasted to outshine many other developed economies.

The study revealed that the recent upswing in household spending was largely fueled by short-lived influences, such as consecutive Easter and Anzac Day holidays and enticing shopping discounts, which are unlikely to extend into 2026.

Harry Murphy Cruise, the report’s author, noted, “Although recent data indicates some economic strengthening, the forecast remains uneven.”

“As the temporary boosts to consumer spending dissipate, unemployment rises slightly, and real wage increases slow down, we expect consumers to tighten their spending once more,” he explained.

“That spending momentum will fade with those temporary boosts in the rearview mirror.

“Meanwhile, households’ appetite to spend will be Ozempic-ed as unemployment edges higher, real wage gains moderate and global uncertainty clouds the outlook.”

Household aren’t expected to regain their full confidence until the end of next year or early 2027, according to the report.

Murphy Cruise added that challenging conditions for businesses will keep unemployment at around its current level of 4.5 per cent for much of the next 12 months.

“Businesses have been burnt by escalating costs and tariff uncertainty, so firms are sitting on their hands,” he said. 

“Investment intentions are being rapidly scaled back, and employment has barely budged over the last four months. The unemployment rate hasn’t reflected the full extent of this weakness – but it will soon.

“Young people are the first to feel the impacts of a slowing labour market; so, with youth unemployment jumping sharply in recent months, we can expect to see that pain spread to other cohorts soon.”

But in a glimmer of good news for Australians still struggling with the cost of living after years of high inflation, Oxford is forecasting that the Reserve Bank will pull the trigger on what would be the fourth interest rate cut of the year next week, with another to come in early 2026.

“We are still confident that inflation will trend lower through the remainder of the year,” Murphy Cruise said. 

“We expect trimmed mean inflation – the measure of most importance to the RBA – to end the year at 2.5 per cent. That should allow for two more rate cuts this cycle.”