IFS Study Says UK Consumers Not Spending

The average UK household is out of the worst of the recession as incomes near what they were before the 2008 banking crisis, according to a new report by the Institute for Fiscal Studies (IFS).

This is usually good news for retailers as following previous crises the British public had used their newfound cash to stack their fridge with food and filling the car with petrol – but not so much this time.

The amount of non-durables (items that are bought and used more or less straightaway such as food and fuel) consumed was 3.8% lower in the third quarter of 2014 than it was in quarter one of 2008. At the same point after the 1980 and 1990 recessions, it was up on pre-crisis levels by 14.4% and 6.4% respectively.

This data suggests that UK households may be feeling a sort of post-recession “shell shock”, adjusting their weekly spending to reflect their perception that less money is available.

The IFS report explains:

If households make large adjustments to their consumption of non-durable goods, it might indicate that their expectations about the amounts they have available to spend over their lifetime have changed considerably, or that their ability to finance consumption through the credit market has been reduced, or both.

In other words, households might be worried that they are never going to have as much to spend as they used to – and despite today’s good news about incomes, that is a scary thought for both retailers and the government.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza