Research by IRN shows that in aggregate, consumers in the UK are willing to commit a maximum of £84 billion of their past savings to purchasing big ticket items, like holidays, cars, home improvements or new widescreen TVs. In addition, consumers are willing to borrow up to £109.37 billion to purchase the same items. This willingness to spend is within the context of signs of rising unemployment but declining consumer survivability (i.e. the ability to survive unemployment).
Commenting on these results, Gary Giddings, director of IRN Research responsible for tracking consumer spending patterns, said: “What is so remarkable about the results is that all the indicators point to a sharp slowdown in consumer spending in the next few quarters. Indeed, IRN Research shows a potential crunch point in spending could come in the third quarter of this year. Despite this, consumers are willing to commit up to one-third of their net liquid savings to finance a major purchase and are willing to take on a maximum amount of new debt equivalent to almost half of their current outstanding non-mortgage debt. Consumers don’t seem to be reading the economic signals and they could be in for a nasty shock.”
IRN’s analysis suggests a recession – i.e. a negative growth in consumer spending - is not expected in the near future, although there is a relatively high risk of recession in the third quarter of 2003 and there will be a potential (but lower level) threat over the 2003 Q4 to 2004 Q2 period, after which the threat recedes.