Are we heading for a renewed downturn?

 Shop prices have fallen for a third year in succession and UK manufacturing is stalling, according to the latest official statistics.

But while the overall picture is tentative, the outlook for the drinks sector, especially the on-trade, is encouraging, according to Capital Economics, the leading independent forecasting house.

Assuming Britain votes to remain a member of the EU in next month’s referendum, it forecasts that overall consumer spending will grow by about 3% this year or by 2.8% allowing for inflation. A vote to leave would cut that by a couple of points to about 2.5%, which is the long-run average for the UK. And it is predicted to continue at that rate for the next three to four years.

But with the polls tipping towards a ‘remain’ vote, there are reasons to suspect that the present economic uncertainty will dispel after June 23, especially as consumer confidence has never been higher according to surveys.

Inflation will remain low, wages are rising and being boosted by the increased national living wage but large retailers are finding it difficult to pass on marginal rises in costs. Overall households have more disposable income to spend. Spending figures for the past quarter have been skewed by depressed trade in fashion and on groceries, where price cutting is prevalent.

It is noteworthy that Sainsbury’s chief executive, Mike Coupe, is saying that overall volumes are down by about 4% in big stores as consumers choose not to spend extra disposable income on groceries but on other areas of discretionary expenditure. This has a knock-on effect in alcohol sales.

But in its latest quarterly analysis of consumer spending, Capital Economics says that the pubs and restaurants sector shows “considerable scope for catch-up, given that real spending on food and drink (i.e. allowing for inflation) is still around 5% below its pre-crisis peak”. That is reflected in the latest Coffer-Peach business tracker which shows the annual rate of on-trade sales growth slowing sharply in the first three months of this year.

However, many in the industry regard those figures as a blip and Capital Economics predicts that annual sales values will rise by between 5% and 7.5% a year up to 2020. That is almost double the predicted rate of inflation in the sector and points to improved on-trade profitability.

And while the rate of pub closures has slowed from the 30 or more a week seen in 2014, the trend of weeding out the weaker outlets is continuing to the benefit of those with a sound business model. Not every pound spent in a now-closed pub is transferred in custom to a rival, but even if 50% crosses other bars, the survivors become stronger financially.

And the sector is likely to be least hit by the additional cost of the enhanced rate of the national living wage for over-25s. Many bars and restaurants are staffed largely by younger part-timers to whom the new £7.20 an hour rate does not apply.

The recent weakness of sterling, especially against the euro, is having a negative effect on importers, but the currency is expected to firm again on a ‘remain’ vote. And even if ‘Brexit’ prevails, Capital Economics believes that a vote to leave the EU “would not dent consumer confidence that badly”.

Even so, the current weakness of the pound is giving a boost to hoteliers. With the peak holiday season fast approaching, Britons are reviving the idea of a ‘staycation’. And while the weaker pound has a negative effect on potential numbers of overseas visitors to Britain, the overall picture for UK hotels remains buoyant following last year’s average 9% rise in turnovers.

Hotels spent several years in the doldrums during the downturn, so the forecasters predict that UK hotels overall will enjoy growth of between 6.5% and 7% a year until 2020, a rate almost double that of forecast retail sales throughout the economy.