Earners 'better off' by end of year

There is "light at the end of the tunnel" for hard-pressed families following five "torrid" years, a key forecasting group has said.

The average earner will see their finances bolstered by an additional £482 this year and £624 in 2013, according to a special report on consumer spending by the Ernst & Young ITEM Club.

Provided oil prices continue to ease, inflation is likely to move back towards the Government's 2% target by the end of the year, from its current level of 3%, bringing prices into line with wages, the ITEM Club said.

Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club, said: "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."

Wage growth will finally begin to outpace inflation, while pay packets will also be boosted by the tax changes announced in the Budget, the ITEM Club said.

Spending growth is forecast at 0.8% this year and 1.1% in 2013, but the ITEM Club warned that high streets will still see a slow recovery as consumers pay down debt.

Mr Goodwin added: "It's an improving outlook for the UK high street but it's going to be a slow and steady recovery. Rather than splashing their cash, we're expecting to see conscientious consumers keeping a relatively firm grip on their purse strings."

The forecaster predicted that audio visual goods - such as TVs, mobile phones and broadband - will continue to perform strongly as "rapid" advancements in technology and falling prices will underpin strong demand. But it said major risks remained.

Mr Goodwin said: "We still need to keep our fingers tightly crossed. The eurozone crisis continues to cast a long shadow and consumer confidence could easily take another hit if the situation worsens, particularly if unemployment nudges up.

"We are optimistic, but conditions on the high street will remain fairly fragile until a more sustainable recovery takes hold."