Squeeze on consumer spending is the worst in peacetime for a century, new research shows

Households are facing the most savage peacetime squeeze on consumer spending in almost 100 years.

Figures show that only during the Second World War did spending suffer a deeper fall. Even the Great Depression saw nothing on this scale.



Analysis by the independent Centre for Economics and Business Research shows an 8.4 per cent fall in real consumer spending per household between 2007 and the end of this year. The comparable figure for 1939-1945 was 14 per cent.



Consumer spending: Only during the Second World War did it suffer a deeper fall

Chief executive Douglas McWilliams said only in the slump of 1919-1920 was there possibly a peacetime drop on today’s scale.



The extraordinary figures are published today ahead Tuesday’s expected downgrading of economic growth in the third quarter.



The first estimate showed the economy roaring back to health, with growth of one per cent from July to September.

But it is now thought that this may have exaggerated the recovery from recession and that the second estimate is likely to see the rate of expansion cut to 0.9 per cent, or lower.



The psychological impact could be out of proportion to the size of the reduction, according to Howard Archer of independent consultancy IHS Global Insight.



‘The fact of no longer having a “one” in front of the decimal point and having a nought instead may weigh with some people,’ he said. ‘More worrying is the possibility of a flat or negative number in the fourth quarter. Much will hinge on spending over Christmas.’

He said higher than expected inflation may make people more concerned and this, in turn, could make worries about negative growth in the first quarter of next year into a self-fulfilling prophecy.



A recession is defined as two successive quarters of negative growth, so shrinkage in this quarter and the next would plunge Britain into a slump for the third time in less than five years.



Trevor Williams, chief economist at Lloyds Bank wholesale markets, said: ‘The second estimate could be lower, perhaps 0.9 per cent instead of one per cent.



‘As for the fourth quarter, I would expect that to be flat, or even slightly negative. But the prospects of a triple-dip recession are more remote. There is no obvious reason why we would get a negative reading in the first quarter of next year.’

Peter Dixon, strategist at Commerzbank, said: ‘There is a possibility of a negative fourth quarter. I am certainly not looking for anything stellar.’

