http://www.guardian.co.uk/business/2011/may/16/high-street-faces-ten-years-of-gloom?CMP=twt_gu
Tough conditions for high street retailers will last for a decade, as household budgets are squeezed and people focus on paying down debt, according to economics thinktank the Ernst & Young Item Club.
With disposable incomes now falling, the thinktank predicts it will be 2013 before consumers themselves can start enjoying any economic recovery.
Data to be released this week is expected to show the economy reversing the gains of last year with higher inflation, rising unemployment and falling average incomes.
City analysts said inflation figures on Tuesday would show a return to the upward trend of the last year, with many fearing it will hit 5% in coming months.
The April figure for unemployment, also to be released this week, is due to show only a small rise on the month but will indicate the underlying trend is upward following deep cuts in local government jobs and other areas of the public sector. Meanwhile a survey of industrial production will point to a weakening of the manufacturing export boom, while average incomes continue to flatline.
The slowing economy has put the chancellor of the exchequer, George Osborne, on a collision course with MPs on the Tory right wing who want him to spur the economy with tax cuts for business and wealthy entrepreneurs.
Fraser Nelson, editor of the Spectator and chief political commentator in the News of the World, accused the chancellor this weekend of failing to stimulate growth with deeper spending cuts to finance bigger tax breaks.
However, he faces an equally strong challenge from the majority of mainstream economists who believe it will take time for the economy to recover while the government cuts debt.
The Item club said efforts by consumers to reduce debt levels would also play a big part in slowing the economy. Retailers will have to fight harder than ever for a share of shoppers' cash, it said.
Despite the belt-tightening, analysis of spending habits shows people still willing to splash out on mobile phones, flat-screen TVs, blu-ray players and gaming consoles, even during the recession. The thinktank expects shops selling audiovisual goods to enjoy sales growth of up to 5% this year. Spending on clothes and shoes is expected to recover in 2012.
Consumers will still be more likely to take advantage of supermarket meal deals than eat out, and to take sandwiches to work rather than getting a take-away from the local cafe. Hotels and restaurants will see spending fall by 0.7% this year before a 0.2% rise in 2012.
The Item Club said consumer spending was set to remain below pre-recession peaks until at least 2013 but would then remain subdued for a further seven years. Andrew Goodwin, senior economic advisor to the thinktank, said: "The squeeze on household budgets is only going to intensify this year, as the gap between high inflation and subdued wage growth continues to widen and we experience a second consecutive year of declining disposable incomes.
"Even [after 2013] consumers are going to be much more cautious in their spending habits, particularly once interest rates have started to rise and mortgage and debt payments spiral."
A separate report from Rightmove showed property asking prices had hit their highest level in almost three years and were now only 1.5% below their all-time high. The average price of a home rose by 1.3% to £238,874 in May from April. The property website cited low interest rates and a dip in seller numbers, with new listings falling from 29,000 a week to 20,000 a week over the extended bank holiday period. In London, the average price was virtually unchanged at £430,936 this month, just £77 off the all-time high set in April.
According to the Construction Products Association, construction grew in the first three months of the year compared to the weather-hit fourth quarter of 2010, in sharp contrast with official figures that show output in the sector fell by 4%. However, construction firms are gloomy about prospects as public sector work dries up.
Stephen Ratcliffe, director of UKCG (UK Contractors Group), said: "There remains a great deal of concern regarding the year ahead given that we have not yet seen the full impact of the public sector cuts. The government has stated that construction is at the heart of its growth strategy for the UK economy and as it accounts for around 10% of the UK's economy, it is vital that investment in essential schools, hospitals and housing is maintained at levels that will provide the basis for economic recovery."
Tough conditions for high street retailers will last for a decade, as household budgets are squeezed and people focus on paying down debt, according to economics thinktank the Ernst & Young Item Club.
With disposable incomes now falling, the thinktank predicts it will be 2013 before consumers themselves can start enjoying any economic recovery.
Data to be released this week is expected to show the economy reversing the gains of last year with higher inflation, rising unemployment and falling average incomes.
City analysts said inflation figures on Tuesday would show a return to the upward trend of the last year, with many fearing it will hit 5% in coming months.
The April figure for unemployment, also to be released this week, is due to show only a small rise on the month but will indicate the underlying trend is upward following deep cuts in local government jobs and other areas of the public sector. Meanwhile a survey of industrial production will point to a weakening of the manufacturing export boom, while average incomes continue to flatline.
The slowing economy has put the chancellor of the exchequer, George Osborne, on a collision course with MPs on the Tory right wing who want him to spur the economy with tax cuts for business and wealthy entrepreneurs.
Fraser Nelson, editor of the Spectator and chief political commentator in the News of the World, accused the chancellor this weekend of failing to stimulate growth with deeper spending cuts to finance bigger tax breaks.
However, he faces an equally strong challenge from the majority of mainstream economists who believe it will take time for the economy to recover while the government cuts debt.
The Item club said efforts by consumers to reduce debt levels would also play a big part in slowing the economy. Retailers will have to fight harder than ever for a share of shoppers' cash, it said.
Despite the belt-tightening, analysis of spending habits shows people still willing to splash out on mobile phones, flat-screen TVs, blu-ray players and gaming consoles, even during the recession. The thinktank expects shops selling audiovisual goods to enjoy sales growth of up to 5% this year. Spending on clothes and shoes is expected to recover in 2012.
Consumers will still be more likely to take advantage of supermarket meal deals than eat out, and to take sandwiches to work rather than getting a take-away from the local cafe. Hotels and restaurants will see spending fall by 0.7% this year before a 0.2% rise in 2012.
The Item Club said consumer spending was set to remain below pre-recession peaks until at least 2013 but would then remain subdued for a further seven years. Andrew Goodwin, senior economic advisor to the thinktank, said: "The squeeze on household budgets is only going to intensify this year, as the gap between high inflation and subdued wage growth continues to widen and we experience a second consecutive year of declining disposable incomes.
"Even [after 2013] consumers are going to be much more cautious in their spending habits, particularly once interest rates have started to rise and mortgage and debt payments spiral."
A separate report from Rightmove showed property asking prices had hit their highest level in almost three years and were now only 1.5% below their all-time high. The average price of a home rose by 1.3% to £238,874 in May from April. The property website cited low interest rates and a dip in seller numbers, with new listings falling from 29,000 a week to 20,000 a week over the extended bank holiday period. In London, the average price was virtually unchanged at £430,936 this month, just £77 off the all-time high set in April.
According to the Construction Products Association, construction grew in the first three months of the year compared to the weather-hit fourth quarter of 2010, in sharp contrast with official figures that show output in the sector fell by 4%. However, construction firms are gloomy about prospects as public sector work dries up.
Stephen Ratcliffe, director of UKCG (UK Contractors Group), said: "There remains a great deal of concern regarding the year ahead given that we have not yet seen the full impact of the public sector cuts. The government has stated that construction is at the heart of its growth strategy for the UK economy and as it accounts for around 10% of the UK's economy, it is vital that investment in essential schools, hospitals and housing is maintained at levels that will provide the basis for economic recovery."
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