Rise in consumer spending

The UK’s faltering economy is set to be buoyed by a rise in consumer spending, with purchasing power expected to return Britain’s GDP to growth in the second half of the year.

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The forecasts from the Ernst & Young Item Club reveal that while the economy will pick up in the second half of the year, the UK will contract by 0.2% for 2012 as a whole.

However, Britain is set to climb out of the current double-dip recession by a figure of 1.2% in 2013 and 2.4% in 2014.

Club chief economic adviser Peter Spencer argues that while an increase in consumer spending will return the UK’s economy to growth, sustaining this recovery will depend on the success of world markets.

“Consumers may be propping up a weak recovery this year but the move towards more balanced growth over the medium term hangs critically upon a recovery in world markets,” he said.

“However, even if the US negotiates the impending fiscal cliff [tax rises and spending cuts] and European policymakers actually do what it takes to save the single currency, these markets will still be held back by austerity and retrenchment.”

Recent findings from Visa Europe’s UK expenditure index revealed that UK household spending increased by 3% month-on-month in September, representing the highest monthly growth figure for nearly three-and-a-half years. This is also an improvement on the consumer spending figure of 1.2% recorded in August.

However, a recent survey from Lloyds TSB painted a less positive picture of consumer spending, arguing that consumer spending fell by 0.9% in September.

Describing the potential factors behind this volatility, Lloyds said it “may in part be attributable to the mixed weather conditions and events over the summer months – such as the Queen’s diamond jubilee and the London 2012 Olympic Games – influencing consumer behaviour patterns and is reflective of other economic data over this period displaying similar variance.”

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