UK recovery to be 'the worst since 1830'

Just when you thought the comparisons couldn't get any worse, another ray of sunshine - this time on the likely rebound in consumer spending.

by James Taylor
Last Updated: 19 Aug 2013
Here's a depressing thought: the post-recession recovery in consumer spending will be slower this time round than at any time since 1830, according to a new FT analysis of Bank of England data. Apparently we've had 18 recessions during this period, and on average, consumer spending bounced back to 12% above its pre-recession peak within seven years. This time, however, the equivalent figure is likely to be less than half that - around 5.4% - as high inflation, feeble wage growth and tax hikes squeeze our take-home pay. Just what we need to get us in a summery mood...

Generally speaking, recent economic history has suggested that consumer spending tends to bounce back as the economy starts growing again - seven years after the last recession in the 1990s, for example, it was 15% above its previous peak (after the 1980s recession it fared even better, climbing to 20% above its previous peak seven years on). However, it's likely to be a different story this time round: according to the latest Office for Budget Responsibility forecasts, consumer spending in 2015 will be just 5.4% above its 2008 peak. As recoveries go, that's slower than after any post-recession rebound in the last 180 years. Oh dear.

The likely causes of this aren't exactly surprising - higher taxes as the Government looks to pay off the deficit, continued price inflation (much of it imported from overseas) and a reluctance by firms to pay higher wages. Naturally, the FT illustrates this important issue by talking to the proprietors of a tattoo parlour in Tilbury in Essex, who bemoan the fact that 'at the end of the day tattoos are a luxury' (really?) - although perhaps the Pink 'Un's salient quote is from a local storeholder in nearly Thurrock: 'Everybody's skint', as he eloquently puts it.

None of today's economic news gives us any cause to disregard this theory: the latest pay data from Income Data Services suggests that private sector pay is still lagging way behind the rate of inflation, while UK manufacturing growth (once of the few economic bright spots in recent times) slowed to a 20-month low in May - such that it's now barely growing at all.

But hey – at least the sun's shining…

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