Business can help offset UK consumer dip

 
Julian Harris
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MISERY on the British high street will be further confirmed by this week’s official retail sales data, economists expect, with attention turning to business investment to offset the slump in consumer spending.

Business investment will increase by 12 per cent this year and by a further 14 per cent in 2012, the Ernst and Young Item Club forecasts.

“The importance of companies releasing some of the cash they have stockpiled over the recession cannot be underestimated,” said Item Club economist Peter Spencer.

“Their spare cash flows equate to nearly seven per cent of GDP.”

Official retail sales figures for March are released on Thursday. The volume of sales on the UK high street in February fell by 0.8 per cent, compared to the previous month.

“UK households continue to see their purchasing power being eroded by the rising cost of everyday living,” said Markit’s Alex Hamilton.

Inflation expectations have jumped to a record high in April according to Markit’s household finance index, also released today.

Nine in 10 households expect the cost of living to be even higher at this time next year, while 85 per cent of respondents reported higher costs than just one month ago.

The outlook for household finances has also tumbled to a record low, Markit revealed.

Real disposable incomes will fall for the second year running in 2011, the Item Club added – the first time this has happened since the 1970s.

The squeeze from inflation and sluggish wage growth is hammering economic confidence in the UK, according to Ashish Prashar from Ipsos MORI.

Only one in four (26 per cent) of Brits expect their local economy to be stronger in six months from now, according to a new Ipsos MORI poll.