Consumers face 'lost decade' as spending squeeze bites

Shopper with bags Image copyright PA
Image caption Households in the "squeezed middle" will have little disposable income over the next few years, the EY Item Club report suggests

British consumers face another three years of squeezed spending, an influential report suggests, amounting to a "lost decade" for households.

Annual wage growth is likely to remain well below the 4.5%-to-5% rises seen before the financial crisis struck in 2008, the EY Item Club survey says.

This will slow consumer spending growth over the next two years.

Median pay in real-terms is forecast to fall from £18,852 in 2008 to £17,827 by 2017, the survey suggests.

The Item club, a non-governmental forecaster that uses HM Treasury's model of the UK economy, believes that record numbers of people in work - currently 30.6 million - will act as a brake on wage rises.

The report expects the pace of consumer spending growth to be 2% over the next two years, compared to the annual average growth rate of 3.7% during the pre-crisis decade.

"Total household incomes have strengthened because more people are in work, but individuals do not have extra money in their pockets," said Martin Beck, the EY Item Club's senior economic adviser.

"Real wages are being held back by strong growth in the supply of workers and the fact that firms are facing increased non-wage costs, such as new pension schemes," he added.

Mr Beck believes the so-called "squeezed middle" - households containing neither highly-skilled nor low paid workers - will continue to see limited growth in disposable income as pay rises remain below the rate of inflation - currently 1.5% - and competition for jobs remains strong.

Younger people in particular face the most pressure on spending, the report concludes, as unemployment among people in their 20s and 30s remains above average and the cost of buying a property continues to rise.

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