Monday, 27 December 2010
Elderly Woman Behind the Counter in a Small Town
There's not much news around this time of the year, except the birth of a baby boy, so for the media the annual sales rush is a boon. Interviews here, interviews there; shopping mall executives are trotted out to claim yet another record footfall; savvy shoppers beaming as they've saved hundreds of pounds buying that sofa or mock leopard skin coat.
Hearing shoppers say "I must have saved £300 today" makes me wince. No you haven't saved anything. You have spent. Shops aren't in the business of saving you money but to encourage you to spend. You have to be extremely savvy to save money shopping. Buying something simply because it appears to be cheaper than it was a couple of months ago is wasteful spending. Spending money you may not have is dangerous.
Interest rates are at record lows; the only way is up. The majority of people with mortgages are on variable rate offerings. Inflationary expectations are growing and with that the prospects of an interest rate increase within the next six months grows. (We have a choice: continuing low interest rates and a risk that inflation takes off: higher rates to stamp down on inflation or a real non inflationary growth of the economy. The last choice is very unlikely). Once inflation kicks in it can be debilitating and is a devil to snuff out.
Raising interest rates will take spending power out of most households at a time when government spending cuts kick in , tax increases take place and transport and utility charges are rising at above inflation. Not a happy scenario for the average Joe and his misses. Even if you're renting you're likely to be hit. Increased interest rates increase the cost to landlords; and the pressure on rented accommodation is severe which increases the cost of renting. If you're on benefits and a large proportion of family are ( which is why benefits are being cut, they have grown so expensive), you're likely to suffer more than most.
For many of us 2011 is going to be a year of squeeze. Spending money at the sales now is not a good idea for many individuals.
But we're told that if we don't spend then economic activity falls. Less shops, less distribution, fewer jobs, fewer purchases etc, etc.
It's pretty lean now for the big item retailers. House sales have fallen dramatically, which means there are many less people moving home. And moving home is one of the biggest stimulus in the UK economy. So if people followed my advice and didn't spend we'd be in an even worse position. Right?
Collectively yes; individually no in the short term; but if enough people followed my advice, in the long term some, despite being sensible with money, could find themselves worse off. If they worked in retail they may lose their jobs because they and many others like them are saving not spending. And this would knock on to the guys in the factory and eventually to teachers, doctors and other public sector workers - less sales, less tax and less government revenue.
I can talk! If anything it's my generation that should be out there spending, taking up the slack. What with final salary pensions (inflation proofed), many of us free from mortgages and with substantial savings, we should have oodles of dosh to splash out on this and that.
Except we're at the wrong stage of the consumption cycle. We tend not to move home - unless it's into a nursing home. We tend not to follow fashion or keep up with the latest technologies. We are more likely to buy a new, rather than second hand, car; but it'll be sensible and low maintenance. And finally we are just more wary and conservative; what with "Our kitchen units will see us out" mentality.
I suspect that even if we were given tax incentives to spend; we wouldn't. Not that an out of work 30 year old with a family to support would be too enamoured seeing "handouts" going to "the lucky generation", who received free university education with a living grant; enjoyed the benefits of the sexual and cultural revolutions but not their shortcomings, and still manage to hang onto the levers of power and wealth.
Nope, it's going to be a bloody 2011 for most of us in the UK; and all we have to look forward to is the 2012 Olympics. Oh, what a blast'd nation we have become.
So here's wishing you all an inappropriate "Happy New Year".