Gloom Fails To Dampen Shoppers’ Enthusiasm
All predictions were for a poor festive season for retailers, with shoppers, apparently unable to get credit and with mortgage repayments having ballooned, staying firmly at home.
But while forecasts remain steadfastly bleak for 2008, UK consumers flocked to the sales to keep up their spending sprees. It is hard to believe that all these happy shoppers will be immune to the forecasts of increasing bankruptcies that fill the financial press each day.
Yet, a sense of 'devil may care' seems to pervade. According to a survey by the Financial Services Authority less than one in six people are going to attempt to sort out their personal finances in the New Year, yet around a quarter of 16-44-year-olds are worried about the bills they will face as we enter 2008.
That figure matches the one in four of us who used credit cards or loans to finance Christmas, and nearly six out of ten of us had no idea how much Christmas presents and celebrations would cost.
Maybe the Bank of England rate cut in early December encouraged people to go out and spend again - everything was all right! In fact, the single cut will make little or no difference to the majority of people. Credit card interest rates will change little, and while some mortgage rates have changed, many have not, and most people are on a fixed rate these days, so a change in variable rates will not affect them. Indeed, those people coming off fixed rates from two or three years ago will still have to pay much more than they have been doing for monthly repayments, so there is still bad news to come.
Gloomy house price news in the last few months will not help the economy in the New Year as much of people’s apparent increase in wealth has come from their property - remortgages and equity release have given them cash in hand; falling house prices will bring that to a halt.
For would-be first-time buyers, of course, a reduction in house prices will be good news, and they may start to see the first rung of the property ladder come into reach over the next year or so.
There have been forecasts for four rate cuts in 2008, which would take the base rate down to 4.5%, but there are factors against this. Firstly, the Bank of England still has its prime responsibility to keep inflation under control, and the likelihood that the pound will drop with interest rates will stay the Bank's hand. However, the Bank would like to avoid recession and will probably make cuts to boost the economy once again.
Some dismal news is that the latest Chartered Institute of Personnel and Development forecast says the outlook for the UK jobs market is the worst it has been for a decade. Unemployment could rise by nearly 10% to 1.8m in 2008 - its highest level since 1997. While redundancies would hit the housing market, there is still some demand to satisfy for first-time buyers who have held back in recent months, and immigration will continue to drive demand.
It is to be hoped that the banks will overcome the sub-prime crisis and the credit squeeze and, while lending sensibly, bring some liquidity back into the UK economy.
Published on January 2, 2008
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