Wednesday, June 26, 2019

Retail sector set to be among “most vulnerable” as consumer spending slows


Consumer spending growth is set to slow down as economic pressures “start to bite”, according to a new study by PwC.

The report projected that spend would slow from three per cent to two per cent this year, with a further drop to 1.7 per cent next year.

This is likely to be offset by increased household borrowing in the short term, which the report suggests could already have seen spending outpace income this year.

Food, alcohol, tobacco and clothing are expected to see a steady decline from a long-term perspective, as spend on financial and personal care services increases relatively rapidly.

PwC‘s study, which will launch in full later this month, goes on to state that consumer spending is the most important aspect of economic growth in the UK and is attributable to over two thirds of the country‘s GDP.

Having risen by 2.4 per cent per year faster than inflation since 2013, consumer spending is thought to have been key to growth before and after the Brexit vote.

“Real household income growth is expected to slow in 2017-18 as rising inflation squeezes spending power,” PwC chief economist John Hawksworth said.

READ MORE: Consumer confidence explained

“Increased borrowing may help fill the gap in the short term, but there are limits to how far UK consumers can continue to live beyond their means with spending rising faster than disposable incomes.

“We therefore expect consumer spending growth to moderate over the next couple of years as higher inflation and Brexit-related uncertainty start to bite.”

PwC senior economist Barret Kupelian added: “Clothing and food sectors are potentially most exposed to the fall in sterling due to their high reliance on imports.

“In addition, the retail, hotel and restaurant sectors, together with food production and processing and construction, could be most vulnerable to any significant restrictions on EU workers coming to the UK after Brexit.

“Such sectors need to start making plans now both to help existing EU workers to register as UK residents where possible, and to consider other options like expanding recruitment and training of UK nationals.”

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