British consumers to feel better off

LONDON - Hard-pressed British consumers will see light at the end of the tunnel after five 'torrid' years, with wage growth finally expected to outpace inflation, a report on consumer spending issued by an independent forecasting group said on Monday.

The Ernst & Young Item Club report said changes to the personal tax system announced in the Budget and falling inflation will bolster the wallets of average earners by 482 pounds ($757) this year and 624 pounds in 2013, which will feed through to a steady pick-up in spending on Britain's high streets.

Provided oil prices continue to ease, inflation is likely to move back towards the 2-percent target by the end of the year, bringing prices in line with wages.

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

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 forecast at 0.8 percent this year and 1.1 percent in 2013, according to the report.

However, ITEM Club warns that it will be a slow recovery for the high street. Spending will be constrained by consumers paying down debt, and won't return to pre-recession levels until 2015.

High-tech goods will win the biggest share of our wallets, said the report.

Audio visual goods, such as televisions, mobile phones and broadband, will continue to perform strongly. The recreation and culture and communications sectors will win the battle for the biggest share of the wallets and will both grow by 4.2 percent this year.

ITEM expects spending in sectors with greater income elasticity to strengthen, such as cars, and hotels and restaurants, albeit slowly. Growth of the two sectors is forecast at 0.7 percent and 0.3 percent respectively for this year and will rise to 2.6 percent and 1.1 percent by 2015.

Goodwin said downside risks dominate the forecast. "The eurozone crisis continues to cast a long shadow and consumer confidence could easily take another hit if the situation worsens, particularly if unemployment nudges up," he said.

"We are optimistic, but conditions on the high street will remain fairly fragile until a more sustainable recovery takes hold, " he said.