Debt-paying may hammer spending

People focused on paying off their debts could mean UK retailers face a decade of non-existent or declining growth, especially if they are based outside of London.

Ernst & Young’s ITEM Club, the economic think-tank that mirrors the Treasury’s economic model, made the gloomy prognosis in a special report on UK consumer spending which forecast consumer spending would grow by only 0.6 per cent this year and 1.3 per cent in 2012 as depressed wage growth and rising inflation squeeze incomes.

The spending figure rises to 2.2 per cent in 2013, but ITEM warns this may be too optimistic.

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Disposable incomes are predicted to fall again this year, by 0.1 per cent – a situation last seen in the 1970s – before growing by 1.4 per cent in 2012.

Over the whole decade, consumer spending is expected to grow by an average of only two per cent a year to 2020, compared to 3.3 per cent in the decade prior to the recession.

The group’s economic adviser, Andrew Goodwin said the squeeze on household budgets was only going to intensify this year and it would be 2013 before consumers could enjoying the recovery.

Londoners are expected to be the biggest spenders this year with a forecast increase of 1.5 per cent, though even in the capital it will take until 2013 for consumption to return to pre-recession levels.

Consumer growth elsewhere will be much more subdued and retailers will have to fight harder for customers’ cash.

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