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UK consumer spending to rise just 2% this decade

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Depressed wage growth and rising inflation will put a sustained strain on UK households over the next few years, leading to consistently low levels of consumer spending.

These are the findings of a new report which predicts that spending will increased just 0.6 per cent this year and will grow by an average of just two per cent a year until 2020.

Economic forecasting group the Independent Treasury Economic Model (ITEM) Club which is sponsored by financial services firm Ernst & Young, compiled the data.

According to its analysis disposable incomes are set to fall again this year, by 0.1 per cent, before growing by 1.4 per cent in 2012.

The report anticipates that an increase in interest rates, further rises in commodity prices, a lack of consumer credit and a further decline in confidence will force shoppers to remain frugal and cause consumer spending to grow just 1.3 per cent in 2012 and 2.2 per cent in 2013.

Andrew Goodwin, Senior Economic Advisor to Ernst & Young ITEM Club, said: “The squeeze on household budgets is only going to intensify this year, as the gap between high inflation and subdued wage growth continues to widen and we experience a second consecutive year of declining disposable incomes.

“It will be 2013, before consumers are really able to start enjoying the recovery.”

London and the south east of England are set to be least affected by this spending slowdown, with people in the capital increasing their spend by 1.5 per cent this year, but here even consumption will not reach pre-recession levels until 2013.

Electricals and fashion retailers are likely to be the most insulated from tightened purse strings in the coming years, with these products still inspiring shoppers, but prices are likely to fall as competition increases.

Steve Wilkinson, Head of Consumer Products at Ernst & Young, said: “The squeeze on consumer spending is going to accelerate some of the societal shifts we’ve started to see over the last few years. Shoppers are going to be a lot savvier about when, where and how they shop.

“In a bid to appear to offer the best value for money, it’s likely that retailers will continue with the deep discounting of iconic brands.

“This will be a major headache for brand owners, whose margins will be under pressure and who won’t want to see their products being devalued through heavy promotions in the supermarket price wars.”

Published on Monday 16 May by Editorial Assistant

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