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Light at the end of the tunnel for the UK consumer after a torrid five years


27/05/2012

By Daniel Hunter

After a ‘torrid’ five years, there is now light at the end of the tunnel for the hard pressed consumer.

According to a special report out by the Ernst & Young ITEM Club, changes to the personal tax system and falling inflation will bolster the wallets of the average earner by £482 this year and £624 in 2013, which will feed through to a steady pick-up in spending on the UK’s high streets.

Consumers will feel better off by the end of the year

The ITEM Club consumer spending special report says that, provided 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.

This, combined with an increase in the personal tax allowance, will see real take home pay stabilising this year and accelerating into 2013, which will benefit the vast majority of consumers.

“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," Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club commented.

"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.”

It will be a slow and steady recovery on the high street

According to the report, stronger household finances and an improving economic outlook will result in a gradual improvement in consumer spending from the middle of this year, whilst tourism from the Olympics will provide an additional boost.

Spending growth is... continued on page two >

 

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