The squeeze on consumer spending in the United Kingdom is likely to ease further in early months of 2012, as the latest car sales figures signaled, and help the economy recover from fourth quarter's contraction and avoid a recession, Howard Archer, chief European and UK economist at IHS Global Insight, said in a note Monday.
Data from the latest Society of Motor Manufacturers (SMMT) survey showed that private car sales recovered in January with a 2.3 percent annual growth against December's 13 percent fall, indicating that the the economy is set to recover in the early months of this year on the back of improved consumer spending.
Total car sales edged up 0.03 percent annually in January, recovering from the previous month's 3.7 percent fall.
Archer, however, warned that the persisting squeeze on purchasing power, combined with rising unemployment and weak confidence, could make 2012 a difficult year for British car makers. The private car segment will not be an exception, as high inflation, muted real wage growth and strict fiscal policy measures could restrict potential buyers from spending on high-value items.
Also, possible delays by fleet operators in replacing vehicles amid mounting pressure from the current weakness of the economy, and increasing cost pressures are likely to add to car manufacturers' worries this year, Archer noted.
Though an expected fall in inflation as the year progresses may see the squeeze on consumers' purchasing power easing, high unemployment rates and low wages are set to make the overall environment very tough for consumers, the economist said.
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