‘Retail will suffer’ as spending power shrinks

Consumer spending power is continuing to be squeezed – meaning there will be no let-up in pressure on retailing.
That’s the conclusion of the Annual Discretionary Income Study just released by Ernst & Young. It says that the average UK household now has less of its monthly income to spend on discretionary purchases than at any time in the last five years. After paying tax contributions, mortgages and monthly household bills families now have just over 22% of their gross income left over; in 2003 they had 28%.

Ernst & Young points out that the level of discretionary income has a significant effect on retail performance – and says that it therefore predicts no improvement in the retail climate.

It expects sector like-for-like sales to continue at between 0 and 2% or worse if interest rates rise again, and the gap between retail winners and losers to widen.

Mortgage payments, impacted by four rises in interest rates since last August, are having the biggest effect on consumers, says Ernst & Young, but it also points to above-inflation rises on a host of fixed costs such as council tax bills, water rates, pension contributions and petrol.

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