Consumer spending set to slow in 2005, says Experian

Consumer spending is set to slow next year as rising interest rates eat into consumer confidence and disposable incomes, according to a report by the global economic forecasting group Experian.

The company's latest economic analysis has revealed that the UK feel good factor is on a downward spiral, with rising unemployment, a cooling housing market and the washout summer adding to the growing consumer malaise. The economic pinch will be felt most particularly in the debt-laden South East.

“Consecutive rises in interest rates have already hit consumer confidence across most parts of the country,” said Melanie Lansbury, associate director at Experian’s Business Strategies division.

“Consumers are becoming increasingly cautious about spending on ‘big-ticket’ items and, with more rate rises likely, further confidence falls over the coming twelve months are a distinct possibility.”

Looking at individual UK regions, only a few areas have seen consumer confidence rise in the past few months, while the majority have experienced a decline. In particular, East Anglia and the South East have experienced significant declines in consumer confidence compared with a year ago.

The feelgood factor has fallen by 15 percentage points in these regions over the past year, highlighting the important impact that the cooling of the housing market is having on confidence levels, Experian said.

Consumers in most regions in the south expect to curb their spending on major purchases, such as cars, plasma and LCD TVs, digital cameras, DVDs, PCs and also on larger white goods, over the next 12 months.

By contrast, in Scotland, where house prices have not increased so strongly and continue to rise, and there is a lower share of private homeowners, consumers still intend to increase their spending on ‘big-ticket’ items over the next 12 months.

(gmcg)