The pace of economic growth across the North East is set to slow over the next 12 months, according to research from PwC.
Growth of 2.5% across the region this year has largely been driven by consumer spending rather than exports, investment or public spending, and the report’s authors warn that consumer spending cannot continue as it has been.
Consumers have dipped into savings over the past two years causing the household savings ratio to fall steadily.
PwC’s report forecasts that North East growth will slip back to 1.9% as consumer spending across the UK falls.
Bill MacLeod, PwC’s senior partner in Newcastle said: “Consumer spending growth has been relatively strong for the past two years despite weak average earnings growth. This has been due to strong employment growth, increased income tax personal allowances and low mortgage interest rates, all of which have stimulated consumer spending.
“We expect the proportion of household spending on essentials like housing costs and utilities to rise steadily and account for more than a quarter of total consumer spending by 2020.
“In addition, as lending increases and interest rates go up the proportion of financial services spending, excluding mortgage interest is also expected to increase to around 13% of total household budgets by 2020.
“We estimate that, across the UK, real household disposable incomes will have grown by around 1.4% in 2014 – but that’s around 2% less than average household expenditure and there is little indication of that gap closing.
“These increased household spending pressures will further put further pressure on families, particularly if real wages don’t begin to catch up with inflation.”
PwC’s report suggests the service sector will remain the main engine of growth in the region, and the UK as a whole, as manufacturing is hampered by stagnation in the Eurozone.