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March 20, 2013

Consumers cut back post recession

Households cut spending by total of £12,000 since start of crisis

UK household spending has been reduced by over £3,000 a year compared to 2007, helping drive the 2008-09 recession and continuing to constrain growth, new research from Which? and Cebr reveals.

As fears of a triple-dip recession grow, analysis of official data shows that on average each household is spending £3,150 less a year, over £12,000 in total, since the beginning of the financial crisis.

Of this, £1,750 is spending on discretionary, non-essential goods and services, which has fallen three times as much as essential spending on items such as food, housing and energy. The fall in discretionary spending has left a huge £136bn dent in the economy.

Spending cutback holding down economic growth

Non-essential, discretionary spending currently accounts for 25% of total GDP. New analysis shows how significant the fall in discretionary spending has been during the financial crisis, contributing 1.6 percentage points to the 1.9% fall in GDP between 2007 and Q3 2012.

This fall in spending by consumers facing a squeeze on incomes and low in confidence has had a huge knock on effect in the economy. For example, official data shows that since 2007 consumers have cut annual spending on eating out by £13bn. This coincided with a 10% reduction in output in the restaurant and catering industry with 90,000 fewer people employed in the industry.

New Which? research also finds that more than two million households are at a critical stage of squeeze and have defaulted on a housing or bill payment in the last two months, while many more are struggling to cope with the strain on their budgets. We found that:

  • Over a third (36%) households are feeling the squeeze in some way.
  • Nine million households, over a third (36%), are cutting back on essential spending.
  • Three and a half million households (14%) are cutting back and getting into debt.
  • Over two million households (9%) are cutting back and have defaulted on a housing or bill payment.
  • Out of all age groups young people are experiencing the most financial difficulty (40%) and people with children are experiencing the squeeze more than those without (45% compared to 31%).

Link to Which? report

 

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