Consumer spending will rise again

By on June 13, 2013
Consumer Spending

A new report has suggested that Brits are poised on the edge of a return to their old habits of spend-happy shopaholism. Hurrah.

According to the Ernst & Young Item Club, consumer confidence is on the up, with personal tax allowances and a recovery in the housing market creating the conditions for a boom in spending.

Apparently, consumer spending will grow by 1.2% this year, before rising to 1.9% in 2014 and hitting 2.2% in 2015. Spending on education (tuition fees, mainly – not exactly a voluntary expense) will be the big winner this year, growing by 16.5%, while spending on both housing and food will grow by 5.6%.

The Good News

The good news for consumers is that the report expects incomes to return to real-terms growth – ie. wages will start going up faster than inflation – this year. Although it also cautioned that last year’s ‘remarkably robust employment performance’ is unlikely to be repeated in 2013.

It added that consumers in the lowest income groups will fare the best because they benefit from changes to the tax regime, in particular the rise in personal allowances – although those with higher incomes will ‘have more bargaining power in the labour market’ (are likely to get better wage rises) because of stronger economic conditions.

The overall effect of this is that over the next few years, consumers could be in a better position than they have been since before the beginning of the economic crisis. Not only will wages start to rise again, but they’ve made ‘the hard yards’ (their words, no ours) in reducing their debt levels, meaning that once growth begins again in earnest, people will (/should) be more comfortable than they’ve been for ages.

You never know: this time, they might even have learned a lesson or two about spending more than they earn.

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