A relevant time to post this story as we’ve just had the consumer credit data which posted a fall this month.
The Ernst & Young sponsored Item Club is out with a report that says UK consumers are going to feel the pinch in finances for three more years as wages struggle to rise.
They say annual wage growth is likely to remain well below the 4.5%-5% range seen before the GFC. They are forecasting median pay in real terms to fall from £18852 in 2008 to £17827 by 2017 marking a “lost decade” of spending.
Record numbers of people in work will act as a brake on wages;
“Total household incomes have strengthened because more people are in work, but individuals do not have extra money in their pockets. Real wages are being held back by strong growth in the supply of workers and the fact that firms are facing increased non-wage costs, such as new pension schemes” said Martin Beck, the Item Club’s senior economic adviser
Young people will be facing the most pressure on spending with the high levels of unemployment and costs of buying a property still rising.
All this will lead to consumer spending increasing by only 2% next year and in 2016, well below the 3.7% annual rate seen in the pre-crisis decade.
Full EY Item Club report here
As long as we don’t start seeing consumers taking the credit card/borrowing route, to levels we saw before the crisis, then the lack of spending isn’t going to do the economy that much damage. It just means that the economy potentially faces a few more years of treading water. I’d rather that than see another debt fueled growth boom.
