Ongoing restrictions on consumer spending could mean that retailers are facing a decade of poor sales growth.
A new report by Ernst & Young’s Item Club predicts that spending will rise by just 2% a year in the 10 years to 2020 as consumers feel a financial squeeze from having to pay off debts, cutbacks in lending, high inflation and possible rises in interest rates.
Consumer spending is expected to increase by only 0.6% this year and 1.3% in 2012. London is likely to be the least affected by the continuing consumer caution, with spending in the capital predicted to be a relatively good 1.5% this year. However, the Item Club forecasts that spending in both London and the UK as a whole will not return to pre-recession levels until 2013.
Disposable income is predicted to fall again, by 0.1%, in real terms this year, owing to high price rises.
Technology and leisure retailers will gain the most from any increase in spending, believes the Item Club, while restaurants are expected to be the least likely to see any benefit.
The Item Club considers that an unexpected rise in interest rates and commodity price inflation will pose the biggest threats to consumer spending.