Consumer Expenditure UK

Readers Question what factors affect consumer expenditure?

Consumer expenditure is determined by many factors. Some of the most important are:

• Disposable income. Disposable income can be determined by taxes, wages and living costs. For example, a cut in VAT should increase disposable incomes and encourage spending. Rise in living costs not matched by wages would cause a fall in consumer expenditure
• Interest rates. Lower interest rates reduce mortgage interest payments increasing disposable income. Lower interest rates also make it cheaper to borrow and give less incentive to save therefore encouraging spending. Some savers may have less income because interest rates are lower, but, in the UK lower rates have a bigger effect on borrowers than savers.
• Confidence about future. If consumers have low confidence e.g. fear unemployment they will spend less now and save. This explains why low interest rates in 2009, have not encouraged spending. People fear unemployment so are preferring to save rather than spend.
• House prices. When house prices are rising, people feel wealthier and are more confident to spend. When house prices rises people can also take part in equity withdrawal which is where they remortgage to be able to spend more
• Inflation / Deflation. If there is deflation, people know that prices will be cheaper in the future, therefore this often causes people to delay spending and buy goods later this can cause a fall in consumer expenditure.
• Availability of Credit. If banks are reluctant to give loans for buying a car, spending on this big items decreases.

See also: House prices and consumer spending

consumer spending 2008 / 09