HOUSEHOLD consumption may take five more years to fight its way out of the worst consumption slump since the great depression and back to its pre-crisis peak, Deloitte warned this morning.
Consumer spending has improved only marginally since it fell off a cliff during the credit crunch, and this gloomy trend is set to continue, the accounting giant said.
This came after the most recent forecasts from the official budget watchdog, the Office for Budget Responsibility (OBR), also predicted it would take until 2017 before households were consuming as much as in 2007 – a Japan-style lost decade for consumption.
“The consumer faces a long haul,” top Deloitte economist Ian Stewart said in a note seen by City A.M. “It is likely to take another five years for consumer spending just to get back to where it was in 2007.”
Deloitte’s consumer tracker, out this morning, did little to calm worries that consumption spending would be held down for years. Though the headline sentiment figure improved from minus 39 per cent in the fourth quarter of 2011 to minus 33 per cent in the same period of 2012, this still suggested consumption budgets were being pushed in the wrong direction.
And consumers still said they were cutting back expenditure on going out, clothing and major consumption purchases – though at a slower rate than in 2011.
These downbeat statistics chimed with Friday’s revelation that the economy had contracted faster than economists expected.
GDP shrunk 0.3 per cent in the fourth quarter of last year, the Office for National Statistics said in its first output estimate, confounding analysts who mostly thought it would edge back only around 0.1 per cent, and raising the frightening threat of a triple-dip recession.
The data was so bad that Citi’s Michael Saunders predicted real GDP per head would not reach its pre-recession peak until 2020. And even with continued weakness, Saunders guessed that consumer price inflation would stay above target for “an extended period”.
Despite all this bad news, Deloitte’s Stewart told City A.M. things were getting “a bit better.”
“The outlook is hardly rosy, but there are reasons for thinking that the worst has passed for the UK consumer,” he said, pointing out that the coalition’s main tax rises had already happened, inflation – though still high – was on its way down, and buoyant equity markets were raising consumer wealth.