Consumer spending power plummets, says report

08 May, 2008

Consumers in the UK have less to spend on luxury items such as alcoholic drinks than at any time in the last 17 years, a new report says.

Rising food and energy bills have sent consumer spending power plunging to its lowest level for 17 years in the UK, a new report says.

Consumers are spending a higher proportion of their income on bills, mortgages and tax than at any time since 1991, said the report by research group Capital Economics.

It said spending in these areas had out-paced wage rises by four per cent, leaving less money in the pot for “discretionary spending” on non-essential items, such as alcoholic drinks.

Capital economist Vicky Redwood said the extra burden of an economic slowdown would maintain the pressure: “Whilst it might not rise any further, it’s unlikely to fall either.”

Some drinks firms, also attempting to swallow duty hikes in the 2008 Budget, are cautious. “It is something we are all concerned about,” said George Marsden, general manager for wine group E&J Gallo in Europe.

“We are really looking at our whole supply chain to see where we can drive costs out.” He said drinks price rises were an “economic reality” in the coming months, echoing a widely held view in the UK industry.

But year-to-date wine sales were up four per cent in the UK off-trade and Gallo remained confident of persuading consumers to trade up, added Marsden.

Drinks industry giants Pernod Ricard and Diageo have repeatedly played down fears that sales will be affected by an economic slowdown.

Top drinks brands will remain "affordable luxuries”, according to Diageo, which has recently seen a resurgence in Guinness sales in the UK and on Thursday reaffirmed a projected nine per cent rise in full-year operating profit.

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