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Consumers disposable income falls by 1.5% in 2011

Regional retail spending forecasts for 2011 reveal North–South divide, with consumers in London and the South East set to spend up to 2.5% more this year, in stark contrast to -2% fall predicted in the North East.

GENERAL MERCHANDISE

Consumers disposable income falls by 1.5% in 2011

A new report commissioned by Kelkoo, reveals that 2011 will see a squeeze on UK retail spending as household disposable incomes fall by -1.5% or £223 on average this year to £14,649, forcing households to tighten their belts. Although overall consumer retail spending is expected to increase by 1% year-on-year, this is due to rising inflation, and underlying retail sales volumes are forecast to contract in 2011.

On average, it is estimated that consumers will spend £4,747 each this year, with total retail sales forecast to reach £296.1bn. However, according to the study, regional retail spending disparities are significant, with London and the South East experiencing up to 2.5% growth in consumer spending, while the North East is predicted to see a -2% fall, resulting in a significant North-South divide in consumer retail expenditure patterns - driven by local economic and social trends.

The research, which was commissioned by Kelkoo and carried out by retail analysts Verdict, examines and predicts levels of consumer retail spending across the UK’s 12 major regions in 2011 compared to 2010. These figures are supported by three additional key economic factors in each region: disposable income levels, unemployment rates, and vacancy levels in shop units.

The report shows that shoppers in the North East will spend the least in the UK and are expected to cut back more than consumers in any other part of the country. Retail spending in the region is predicted to fall by -2% on average or £73 per person to £3,698 in 2011 - 28% (£1,049) less than the UK average (£4,747). In large part, this is due to the fact that the North East has the highest unemployment rate in the UK (10.7%) and the lowest disposable income levels in the country at £12,255 per household – 20% below the national average (£14,649). In addition, the region also has the second highest nationwide shop vacancy rates at 15.4%.

Reduced spending will also be an issue for retailers in the North West this year, with consumers set to spend £4,003 or -1.3% less than in 2010, as a result of falling disposable income levels (-2.1%) and a higher volume of vacant shop units than in any other UK region (16.1%). Scotland also trails behind when it comes to retail growth, with consumers expected to increase their spending marginally by just 0.3% or the equivalent of only £13 a year to £4,588.

In stark contrast, London and the South East will see the biggest growth in annual consumer spending at 2.5% and 1.8% respectively, with Londoners spending 25% more than the national average or the equivalent of £5,946 per person on retail goods this year. In spite of London’s relatively high levels of unemployment (9.9%), the average disposable income in the capital is £18,867 per household, the highest in the UK and remains almost 30% above the national average (£14,699). Moreover, unemployment rates in the South East are lower than anywhere else in the UK (6.5%), and in both regions consumers have above average levels of savings and wealth, shielding them against the economic challenges of this year.

Dwindling Disposable Incomes
The average household disposable income in the UK is forecast to be £14,649 in 2011, with consumers expected to spend almost a third (32%) of it purchasing retail goods (£4,747). On a regional level, consumer spending expectations for 2011 are far from even, with the study revealing a significant gap in consumer spending power across the UK and a clear North–South divide. For instance, compared to households in the North East, which have the lowest disposable income in the UK (£12,255), the average disposable income in London (£18,867) is 54% or £6,612 higher, and shoppers in the capital are set to spend over 60% (£2,248) more on retail goods in 2011 than their counterparts in the North.

As a result of the ever increasing cost of living, the average disposable income in the UK is expected to fall by -1.5% this year, with households in each of the UK’s 12 regions experiencing a decline. Yet again, consumers in the North East should see the biggest annual fall (-2.3%), down by £288 per household or £24 per month. The second hardest hit region will be the North West (-2.1% or -£281), followed by Northern Ireland (-1.9% or -£252). London will have the lowest decline in disposable income at just -0.9%, closely followed by the South East and Eastern England (-1.1%).

Rising Unemployment
Alongside disposable income, unemployment also has a knock on effect on retail spending across the regions. The North East tops the chart with unemployment expected to hit 10.7% in 2011, up 1.3% year-on-year, followed by Yorkshire and the Humber (10.3%), and Wales (10.2%). The lowest levels of unemployment this year will be across the South of the country in the South East (6.5%), South West (6.6%) and Eastern England (7.3%).

Chris Simpson, Marketing Director Kelkoo, comments: “Retailers certainly have their work cut out this year as disposable incomes are hit by austerity measures and consumers tighten their belts to weather the storm. The ever increasing cost of living is hitting the entire country with varying degrees of severity, alongside rising unemployment and increasing numbers of vacant shop units.

“In 2011, we forecast total retail spending will be worth £296.1bn, representing an increase of 1.96% on last year. While the headline figure looks attractive, and consumer spending is expected to rise marginally by 1%, this growth is in fact driven entirely by inflation, and retail volumes are actually expected to contract in 2011. So, in other words, we will need to spend more to buy less. It is therefore more important than ever for all of us to maximise the savings that can be made by shopping online.”

Other findings.

• Disposable household income set to fall by -1.5% on average to £14,649 in 2011, putting a squeeze on UK retail sales, particularly in the hardest hit regions of the North East (-2.3%) and North West (-2.1%)
• Retail sales volumes expected to contract in 2011 but overall consumer spending set to rise by 1% year-on-year, as a result of inflation, to an average annual spend of £4,747 per person
• London and the South East will see the biggest growth in annual consumer spending at 2.5% and 1.8% respectively, with Londoners  spending 25% more than the national average at £5,946 per capita
• The North East and North West will see the largest decline in retail spending at -2% and -1.3%, due to high unemployment rates (up to 10.7%) and disposable income levels up to 20% below the national average
• Consumer spending power varies drastically across the UK. Compared to households in the North East, the average disposable income in London is 54% higher, and shoppers in the capital are set to spend over 60% more on retail goods in 2011

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