By Francesca James
Real disposable incomes are expected to fall again in 2012, according to a new report by leading economic forecasters Cebr. In its latest edition of Cebr Consumer Insights, the thinktank has revised down its forecast for real disposable incomes for 2012 from broadly flat to a fall of 0.2%.
As the UK endeavours to stumble its way out of double‐dip recession, consumers will face a third consecutive year of declining real disposable incomes. Inflation falling away in recent months is a welcome development, yet it is doing so at a much slower rate than expected at the start of the year.
Given this, Cebr expects the squeeze on consumer finances to persist, especially considering the stubbornly low rate of earnings growth. Latest UK labour market data revealed three‐month annualised growth in average gross pay of just 0.6% — a full five percent below the equivalent figure of five years ago.
This illustrates that even as inflationary pressures subside, the level of wage growth is still markedly below the rate of price increases. As a result, consumers are expected to find their real disposable incomes have contracted over 2012.
Cebr forecasts this continuing squeeze to constrain growth in retail sales volumes to 1.2% over the year.
While special events in the form of the Jubilee and Olympics are expected to induce an upsurge in retail activity, the net impact may be muted. Much of the shopping expenditure during the Queen’s Diamond Jubilee is likely to merely have been moved forward from later months, leading to retail sales falling in subsequent months, as was seen with last year’s Royal Wedding.
Cebr forecasts the Olympics to be of net benefit to the retail sector, but this uplift will be limited in scope: broadly localised to the London area, with tourism activity potentially crowding out some of the retailing which would have otherwise occurred.
“Wage growth is disappointingly anaemic, without much prospect of it picking up in the coming months,” says Osman Ismail, main author of the report. “Unemployment is still high, the doubledip recession has dented confidence, and plenty of public sector cuts are still to come.” Douglas McWilliams, Cebr Chief Executive, comments ‘The euro crisis if it continues could bring inflation down by as much as 1% or more compared with our forecast from lower commodity prices and a stronger pound.’ But he adds ‘This is unlikely to do much to help consumer spending because it would be more than offset by higher unemployment and reduced consumer confidence.’