The UK's leisure economy

Spending on leisure has been resilient through the recession.

26 March 2014, Words by Savills Research

 

Whilst there is some concern amongst economists and other commentators that the UK economic recovery is a bit unbalanced, the consumer and housing led pick-up is undoubtedly good news for the leisure economy.

As Graph 1 shows, consumer confidence picked up to -7 in January 2014, its least pessimistic level since October 2007. This indicates that the UK consumers have returned to their normal state of mild pessimism! The pick-up in the housing market has undeniably had an impact on consumer confidence, and this along with rising employment levels should improve leisure spend throughout 2014.

Graph 1

One lurking issue on the consumer side of the economy is real earnings growth. Average weekly earnings in the UK only grew by 1.3% in 2013, and while this is slight improvement in the rate of growth, it still means that in real terms the average UK household is experiencing a contraction in its income. This means that any future rise in spending can only be supported by reductions in the savings ratio or increased borrowing. Much of the boost that retailers and leisure operators saw in the run-up to Christmas was delivered by a reduction in the savings ratio, but the scope for most households to reduce this further is limited.

The prospects for spending growth are definitely brighter in 2014 than they were in 2012 and 2013, but it will still be some time before spending power is sufficiently strong to support the rates of consumption growth that we have seen recently.

A continuing theme of this report throughout the downturn has been that spending on leisure is generally more resilient in a recession than spending on other things. This was definitely the case in the most recent downturn, when total household spending contracted by 0.2% per annum and spending on recreational and cultural services rose by 0.2% per annum. The difference is even more significant if we strip out spending on goods and housing, which leaves spending on other services contracting by 1.1% per annum over 2007-11.

The recovery in the economy will lead to another rebalancing of consumers' spending priorities, and we expect that spending on the things that people cut back on in the downturn will grow faster. This means that against a background of average annual household spending growth over the next five years of 2.4% per annum, spending on goods will rise by 3.5% and spending on leisure services by 1.3% per annum.

 
 

Key Contacts

Mat Oakley

Mat Oakley

Director
Commercial Research

Savills Margaret Street

+44 (0) 20 7409 8781

 

James Hurst

James Hurst

Director
Retail Warehouse & Leisure Investment

Savills Margaret Street

+44 (0) 20 7409 9927

 

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