Retail spending has peaked and will slide when the housing boom comes off the boil over the next two financial years, economists warn.

Inflation-adjusted retail sales grew 3.3 per cent during 2014/15, retail’s best performance in seven years, Deloitte Access Economics report says.

Report author David Rumbens says interest rate cuts, a housing supply shortage, and increased foreign investment from China have fired up the housing market and retail spending.

“The recent strength of retail sales owes a lot to a continued boom in household goods retailing where growth has been running in the double digits,” he said.

“The good news is that household goods retailers have recently been joined by clothing retailers where sales growth has picked up considerably.”

The biggest impact has been seen in Sydney and Melbourne where house prices jumped to new highs in winter.

However, Mr Rumbens said the retail cycle has reached its peak and spending growth will likely slow down to 2.7 per cent in 2015/16 and fall further to 2.4 per cent in 2016/17.

“Unfortunately, low interest rates and the housing market won’t be able to support retail spending forever,” he said.

He said retail spending would suffer when the housing boom in Sydney and Melbourne comes off the boil.

“As the support provided by low interest rates and rising asset prices begins to subside and the labour market remains patchy as a driver of household income growth, retail growth may moderate from its current level,” he said.

AAP