Readers Question. Could you give any more information on how you think consumer buying habits will be affected by the credit crunch moving into 2009. Obviously people are spending less nowadays and tightening their purse strings. Will this continue into 2009? Will we see the birth of a new type of savvy consumer who knows what supermarket to go to at any given time to get the best deals, who used to shop at Waitrose and is by 2009 a fully fledged Aldi advocate? Will people still be staying in instead of going out or will we rise out of this bump and return to life just as it was before the doom and gloom headlines hit the media?
Consumer spending will continue to be squeezed in 2009. Various factors are causing consumer spending to fall at the moment.
Falling House prices. Houses are the biggest form of wealth in the UK. As house prices fall, consumers lose confidence and can no longer remortgage to gain equity withdrawal. With mortgage lending continuing to be tight house prices are likely to fall further in 2009. Therefore, this will be a big drag on consumer spending.
Cost Push Inflation. Inflation is forecast to peak at around 5% before starting to fall next year. Despite the increase in costs, wage inflation has remained low. This means,
- living standards have been squeezed reducing consumer spending
- It will help reduce inflation next year.
Rising Unemployment.
The slowdown in the economy and rising unemployment will be a big factor in reducing consumer spending. Some predict unemployment will reach 2 million by Christmas time. Even the fear of unemployment may be sufficient to reduce spending.
Devaluing Pound.
The pound has become weaker against Euro and dollar. Whilst this is good news for UK exporters it means the price of imported goods will rise, reducing spending.
With these pressures on consumer’s disposable income, it is expected that consumers will be come increasingly frugal and careful about spending. This will mean less going out and a greater preference for bargain and ‘value’ products.
The media often exaggerate any change in consumer spending. It’s not as if all Marks and Spencer’s pre prepared meals are going to be replaced with long lines of budget baked beans. There will still be a demand for luxury goods. However, retailers will notice a significant shift in consumer spending patterns; the likes of Tesco will do well to promote budget lines rather than luxury lines.