UK consumers will be hundreds of pounds better off this year as a result of falling inflation and changes to the personal tax system, research has revealed.
Consumers have been hit hard since the global recession started five years ago, but research by the Ernst & Young ITEM Club has found that there could be light at the end of the tunnel.
“After the tightest squeeze on consumer incomes in a generation, the worst is now behind us and most people should start to feel a bit better off by the end of the year,” said Andrew Goodwin, a senior economic advisor to the Ernst & Young ITEM Club.
The global financial firm has said that the average British worker will be £482 better off in 2012, compared to last year.
Consumers’ wallets will be bolstered even more next year, with the average person set to be £624 wealthier in 2013.
The Ernst & Young consumer spending report has found that, provided oil prices continue to ease, inflation could move closer to the government’s 2% target by the end of the year.
This will bring prices back in line with wages which, combined with the increase in personal tax allowance, will boost consumers’ spending power.
“Wage growth will finally begin to outpace inflation and our pay packets will also be boosted by the tax changes announced in the Budget,” added Mr Goodwin.
“Only the top 10% of the income distribution, earning above £36,000, and the bottom 10%, who aren’t liable for income tax, won’t benefit from the increase in the personal allowance.”
The boost to consumers’ wallets will have a positive impact on the economy, helping to dig it out of the double-dip recession. However, the research warned the economic recovery on the high street will be slow.
Spending growth is forecast to be 0.8% this year, rising to 1.3% in 2013. There will also be a boost from the increased tourism as a result of the Olympic Games.
“It’s an improving outlook for the UK high street but it’s going to be a slow and steady recovery,” said Mr Goodwin.
“Rather than splashing their cash, we’re expecting to see conscientious consumers keeping a relatively firm grip on their purse strings. Instead, they are likely to focus on trying to pay down debt, taking advantage of a 12 month window before interest rates start to rise again.”
If you struggle with things like credit card debt, consider investing in a prepaid card instead. These will help you curb your spending by allowing you to spend a preloaded sum.