Hopes that consumers will lift the economy suffered a blow yesterday as research suggested household spending will grow so slowly it will still be below its 2007 peak in five year’s time.
The Centre for Economics and Business Research (CEBR) said spending will grow by less than 0.4 per cent a year in real terms as people focus on building up savings to guard against weak pay growth, high unemployment and continued government austerity.
CEBR economist Daniel Solomon said retailers would be relieved that consumer spending had stopped falling but “won’t be opening the champagne just yet”.
“Consumption is expected to grow at a snail’s pace over the next six years meaning the British consumer cannot be relied upon to pull the economy up by its bootstraps,” he said.
During the boom from 2002 to 2007 consumer spending per household rose by 10.4 per cent in real terms, as wage increases and low unemployment meant consumers were happy to borrow widely and spend freely. But the financial crisis and subsequent recession sent spending into reverse, down 7.1 per cent between 2007 and 2013 as consumers tightened their belts.
The CEBR forecasts spending will rise by less than 0.4 per cent-a-year on average between 2013 and 2018, adjusted for inflation.