Recovery will prove to be painfully slow

High inflation, tax rises and slow wage growth will mean in four years’ time UK households will be spending just 5.4 per cent more than they were in 2008, according to analysis by the Financial Times.

That compares to a spending rebound of 20 per cent seven years after the 1980s recession and 15 per cent after the 1990s downturn. The average for every major recession the country has suffered since 1830 is for spending to have bounced back by 12 per cent after seven years.

The FT, which based its analysis on official forecasts and figures, suggests the squeeze on incomes means consumers will barely notice the economy is expanding again.

Consumer spending is currently 4 per cent below the 2008 level and it will be 2013 before it matches levels seen before the credit crisis, according to the Bank of England.

The last time Britain saw such weak consumer spending growth was in the 1970s when the oil shock of 1973-74 sparked a global crisis.

Seven years after the peak of that economic crisis, household spending had recovered by 8 per cent, a figure well above the Office of Budget Responsibility’s current 5.4 per cent forecast.

Leading think-tank the National Institute for Economic and Social Research (NIESR) recently warned consumer spending will drop by 0.6 per cent this year – a major factor driving low demand at home.

“Real disposable incomes are expected to drop by 1.3 per cent in 2011 after a 0.8 per cent decline last year.

“The recession may have been relatively benign but the recovery is going to be particularly awful,” NIESR economist Simon Kirby said.