Consumer spending likely to increase, says ITEM club

CONSUMERS are likely to see an improvement in their personal finances this year, which could feed through to the high street, according to Ernst & Young’s ITEM Club.

It states that after a ‘torrid’ five years, there is light at the end of the tunnel with changes to the tax system and falling inflation likely to boost the wallets of the average earner by £482 this year and £624 in 2013.

It said that if oil prices continue to ease, inflation is likely to move back towards the 2% target by the end of the year, bringing prices into line with wages. When increased tax allowances are added in, this should lead to real take home pay stabilising in 2013 before increasing in 2014.

Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said: “After the tightest squeeze on consumer incomes in a generation, the worst is now behind us and most people should start to feel a bit better off by the end of the year.

“Wage growth will finally begin to outpace inflation and our pay packets will also be boosted by the tax changes announced in the Budget. Only the top 10% of the income distribution, earning above £36,000, and the bottom 10%, who aren’t liable for income tax, won’t benefit from the increase in the personal allowance.”

He added that household debt is continuing to fall.

“It’s an improving outlook for the UK high street but it’s going to be a slow and steady recovery. Rather than splashing their cash, we’re expecting to see conscientious consumers keeping a relatively firm grip on their purse strings.”

Any increase in consumer spending is likely to be welcomed by retailers, given the perilous state of the sector.

New research published by Local Data Company on shop vacancy rates in April showed that they have remained at a historic high of 14.6% for the third month in a row.

Local Data Company director Matthew Hopkinson said: “There are two ways to interpret three months of ‘no change’ in the national shop vacancy rate.

“One view is that it is at least stable and now lies below the trend line. The other view is that whilst stable it is at the highest rate ever recorded and equates to 23,690 vacant shops in town centres alone.

“The recent uncertainty in Europe has potential to create a big impact as the Pound strengthens and the demise of Clinton Cards and Birthdays is the largest administration by number of shops since Woolworths in 2008.”