With the economy being a complex tapestry of varied factors, understanding the reasons behind its growth or lack thereof can be a daunting task, and living in the politically and financially uncertain times that we are, it’s now arguably more difficult than ever to get to grips with it.
Recent figures showed, however, that consumer spending was down in May in a number of different areas, including clothing, household goods, food and transport. This always brings with it natural fears of another major dip towards recession, making it important that we consider the context of the current climate; why we experienced this fall and whether it seems set to last. That said, here are a few points worth keeping in mind that may have contributed to shoppers tightening their belts.
- Election uncertainty
General Elections often throw up a lot of concerns at the best of times, causing something of a pause in economic activity, with people opting to wait until they know the outcome (and therefore which policies are due to come into force with regards to the economy) before making any significant purchases or financial decisions. The failure of any party to return a parliamentary majority may have enhanced this feeling of limbo even further.
- Brexit concerns
Leading on from the election somewhat, but a factor worth noting in its own right as well, concerns over the UK’s departure from the European Union continue to hang over the economy like a cloud. Consumers already fearing the possible impact of so-called Brexit won’t have taken much comfort from the news that the ‘inconclusive’ outcome of the election instantly led to even greater levels of doubt with regards to the nature of the financial deal the country can expect to get in terms of trade and access to the single market, or even when negotiations could properly begin, since the Conservatives’ bargaining power had potentially decreased.
- The weak pound
Once again, a factor that is in part tied into the others, the performance of the pound in relation to international currencies has been another problem in recent months. Since the EU referendum vote, the pound has floundered somewhat, and currently consumers can expect to fork out around £200 more to get €1000 than they had to a couple of years ago. People like to get their money’s worth, and this knowledge that our cash just isn’t going as far as it used to could well be another issue influencing people to wait rather than spend now.
- Inflation issues
Recent numbers from the Office for National Statistics showed that pay growth has failed to live up to expectations, and with prices still on the up due to inflation, a lot of people are really feeling the pinch. What we take home after adjustments allowing for inflation have been made is known as ‘real wages’, and this essentially tells us if our pay is enough to continue our existing living standards as the economy changes. Hearing that real wages are down can understandably lead to many people making cutbacks, hence lower levels of spending and therefore less going into the economy, creating a vicious cycle that highlights the importance of appropriate rates of pay.
from Finance Girl http://www.financegirl.co.uk/why-is-consumer-spending-down/