The UK faces an economic downturn which will be “shallow” yet “prolonged”, but higher income groups should be relatively “shielded” and travel remains “well-placed” to prosper, according to industry analysts.
Speaking at Abta’s Travel Convention in Marrakech, PwC leisure strategy director Eleanor Scott noted: “The UK economy is forecast to decline in the coming months.
“One driver is high inflation which we were expecting to peak at about 18%. Now with the energy price cap we expect it to peak at 10%-11%.
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“Incomes are going up but not enough to offset this so households face a decline in income comparable to the global financial crash but over 12 months not three years, so it will feel hard.”
She forecast the downturn “will be relatively shallow but relatively prolonged”. However, she said: “High income groups will be relatively shielded and less impaired. Their income is growing.”
Scott added: “Household savings were huge during Covid but concentrated on higher income groups so there is a high disparity between groups.”
She told the Convention: “It’s a fast-changing environment. Tax cuts are a good thing for consumer demand.
“But the exchange rate makes holidays more expensive and will make inflation stick around longer, while interest rates are expected to go higher now than they would have. People will have less money to spend.”
Scott highlighted the results of a consumer survey conducted a week earlier, noting one third (32%) of respondents reported money was tight or they were struggling and noted: “Consumer expectations for household finances have declined to their lowest since the financial crisis.”
She suggested: “We tend to see a six-month lag between consumer sentiment and spending.”
Yet she also noted the “barriers” to travel had changed since the lifting of pandemic restrictions, with just 25% of consumers saying they feared catching Covid when travelling while 41% expressed concern about airlines cancelling flights and 29% reported concern about household finances.
Rick Jones, partner and head of travel and leisure at PwC, noted Barclaycard consumer spending data for August which suggested 81% of consumers spent more on travel than in the same month a year earlier.
He argued “things can bounce back very quickly” and argued: “Travel is well-placed to benefit from long-term trends driving consumer spending.”
Jones noted the falling share prices of listed travel companies and contrasted these with the spate of privately financed mergers and acquisitions in the sector over the previous 12 months.
He told the Convention: “The attractive characteristics of the travel sector are likely to attract investment interest in 2023.”
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Picture: Arif Gardner