Poorest the worst hit by squeeze

Jul 8 2008 By John Cranage, Business Staff

The squeeze on household finances from energy and food prices means growth in consumer spending will slow to half a percentage point next year, according to a survey.

Further falls in house prices will add to pressures on homeowners’ finances, says the latest UK Economic Outlook by PricewaterhouseCoopers.
The report says discretionary household spending is being squeezed by the rising costs of non-discretionary items such as utilities bills, food, rental payments and debt servicing. It also shows it will be the poorest households hit hardest by the squeeze owing to the larger share of their incomes dedicated to paying for basic items.

The report estimates total debt service costs, including principal and interest payments on household debt rose to record levels of just under 20 per cent of household disposable income in 2007.

This burden is likely to be sustained for and will provide a persistent drag on consumer spending growth in the medium term.

David Waller, regional chairman at PwC in the Midlands, said: “It will be the poorest households hit hardest by the squeeze owing to the larger share of their incomes dedicated to paying for food and household energy bills. 

“The outlook for household spending growth in the UK is looking more subdued than at any time since the early 1990s.”

Nationally, PwC’s main scenario is for economic growth to slow from 3.1 per cent in 2007 to 1.75 per cent in 2008 and 1.25 per cent in 2009 due to falling house prices, reduced credit availability, slower global growth and higher inflation. In the West Midlands, the economic growth rate is expected to be consistent with the national picture at 2.9 per cent in 2007, falling to 1.6 per cent in 2008 and 1.3 per cent in 2009. But risks to growth are heavily weighted to the downside.