Arab Today, arab today high street faces eight years of struggle
Last Updated : GMT 14:14:15
Arab Today, arab today
Arab Today, arab today

High street faces eight years of struggle

Arab Today, arab today

Arab Today, arab today High street faces eight years of struggle

London - Arabstoday

Retailers will have to weather a “tough trading environment” as householders’ hoarding of cash and debt repayment mean consumer spending will fail to return to pre-recession levels before at least 2015. The forecast from the Ernst & Young ITEM Club suggests the worst of the recession could be behind us but warns a recovery could be derailed by consumer habits and put under renewed pressure by rapidly increasing mortgage costs. The economists expect Bank of England interest rates, the foundation for mortage costs, to climb to 4-5pc by 2015, leading to a quadrupling in the percentage of household disposable income going towards debt interest payments to 3.2pc. 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. [However] rather than splashing their cash, we’re expecting to see conscientious consumers keeping a relatively firm grip on their purse strings. Instead, they are likely to focus on trying to pay down debt.” The club expects consumer spending to rise by 1.1pc this year, stabilising at an annual increase of 2.3pc between 2012 and 2020. However, the figure is some way short of the 3.8pc annual rise in the 10 years prior to the financial crisis.Mr Goodwin said: “We still need to keep our fingers tightly crossed. The eurozone crisic continues to cast a long shadow and consumer confidence could easily take another hit.” The guarded outlook chimes with the view taken by Bank of England chief economist Spencer Dale. “On our forecasts we will not get back to pre-crisis levels of output until 2014,” he said at the weekend. He also warned quantitative easing did not represent a silver bullet to deal with the ills in the economy. The Bank’s forecast is similar to the one presented by the ITEM Club, with a slow recovery building over the short to medium term. Inflation is expected to fall to the Bank’s 2pc target while spending power for all but the very rich and very poor will be boosted by changes to taxation policy. However, the ITEM Club report makes the proviso that growth in spending will only come if “oil prices cool and inflation continues to slow”. “Changes to the income tax regime will aid this process, particularly next year for those income groups just above the median wage, although the nature of the changes means that the highest and lowest earners will not see any benefit,” it states. Despite the ITEM Club’s prediction of an extra £1,100 of spending power for wage earners over the next two years, Andrew Tyrie MP, chairman of the Treasury Select Committee urged caution: “Individuals, companies and the Government are rebuilding savings and repaying debt after the boom and bust era and we have not completed that adjustment, suggesting a further sustained period of below-trend growth.” The improvement in economic conditions could also lead to an increase in Government spending. Speaking on the BBC on Sunday, Deputy Prime Minister Nick Clegg said: “We’ve got the breathing space to step up a gear, do our bit to support demand.” He added the Government could use its “credibility” to leverage money into the economy. 

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