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Ersnt & Young ITEM Club argue that George Osborne’s attempts to rebalance UK have failed.
The UK has “returned to relying on” the consumer “to drive economic growth”, the latest Ernst & Young ITEM Club special report on consumer spending has argued.
Criticising the failure of the UK government’s plans to rebalance the economy, the report says that “the plan to move from an economy dependent on consumption to one led by exports and business investment is on hold” and that the Chancellor, George Osborne, admitted defeat in his March 2013 budget.
With consumers having struggled against falling real incomes since the onset of the financial crisis the report argues that in 2012 consumer spending was still 4% below its 2008 peak.
However, the “beleaguered UK consumer finally began showing signs of life in 2012” and following a recovery in real household incomes driven by employment growth, the uprating of social benefits, and weaker inflationary pressures, “as highlighted in our recent special report on inflation”.
Last year’s “remarkable labour market performance” is unlikely to be repeated in 2013, argues Senior Economic Adviser Peter Spencer. Inflation is not expected to slow significantly from its current levels, but the impact of these factors “will be partially offset by the boost to take-home pay from the increases in income tax personal allowances”.
Taking all these factors into account, ITEM’s analysis argues for an expected “upturn in consumer spending” that will “gradually gather momentum”, with projected growth of 1.2% in 2013, 1.9% in 2014 and 2.2% in 2015. These growth rates may mark a step-change from the past five years, but they are nowhere near the levels seen in the decade leading up to the financial crisis.
