The CBI believes that the outlook for consumer spending has deteriorated significantly because surging import prices have eroded shoppers’ purchasing power.
In a report on the economic prospects for the UK over the next year, the CBI said that tighter lending conditions will add to retailers’ woes as consumers’ ability to bring spending forward is curtailed.
A weaker currency and sharp increases in the costs of petrol, gas, electricity and food have led the CBI to forecast that inflation in the Consumer Price Index will pick up sharply to peak at 3.2 per cent by the third quarter of this year.
More positively, the CBI expects consumers will use a period of relatively slower UK growth to increase their rate of saving, “which has fallen to unusually low levels over recent years”. This could lead to an improved outlook for retailers in 2009 and beyond.
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