With recession seemingly inevitable it's time to reign in the spending. But what is the nation doing to tighten its belt?
As another week of dire warnings about impending recession comes and goes the nation is starting to sit up and take notice. It seems that finally many people are starting to make the deep spending cuts that, whether you are financially secure or not, are the only sensible course of action given that the UK is now facing the worst economic conditions in decades.
The latest figures show that manufacturing output continues to slow, further evidence that recession is now probable, rather than possible. With house prices falling faster than ever before (over 12% in the last year), repossessions up by 24% compared with last year and unemployment predicted to rise to two million, things look rather bleak.
As if that wasn't bad enough, there was cold comfort from the government this week, when Chancellor, Alistair Darling told us that we must put up with rising fuel and food costs, and take below inflation pay rises on the chin. In essence he has a point, because big pay rises will help to entrench high inflation and make the economic pain more chronic than acute.
However, there is a fly in the ointment. It seems that precious few of us are remotely prepared for a tough few years. Recent research found that that up to one third of adults have overlooked the small matter of saving money during time of relative plenty – around one third of adults have enough savings to last just 11 days should the worst come to the worst.
Of course, when we are all faced with rocketing fuel (up 35% in some cases) and food (up 8.3%) prices, savings are only part of the picture. No-one should be tempted to dip into savings just to sustain monthly spending – save them for the real rainy days. Rather the prudent thing to do right now is to cut back on monthly spending wherever possible – to preserve or even increase our savings.
So where is the nation making its savings? Well, for starters anything perceived as a luxury purchase is a no no, with new car sales at their lowest level since 1966, whilst holidays and even cinema trips are sliding off the menu. More significantly, the ‘Aldi effect’ is taking hold with a vengeance, and not just in the supermarkets. For instance budget hotels are booming as businesses and consumers alike look for cheaper options, whilst charity shop sales have recently broken through the £100m barriers as shoppers look for bargains.
But food is still where the action is, as we all go looking for ways to cut down on eye wateringly high checkout bills. Aldi has reported monthly sales increases of up to 44% this year, closely followed by budget rival Lidl. The big supermarkets are struggling to keep up, with Sainsbury’s planning a big push on its own brand products and Waitrose posting sub-inflation sales growth of just 1.9%. Not surprisingly, ethical shopping has been hit hard, with sales of organic foods down from £100m per month to £81m.
In fact, aside from food and shoes, we are buying less of everything, and even food sales are tempered by the Aldi effect, with shoes only bucked the trend because lots of us had to cough up for new school shoes this month.
This can only be a good thing because buying less of everything is exactly what we should be doing. Aside from helping us all to survive the credit crunch, it will also help to stabilise inflation. And when that happens we can expect to see some interest rate cuts and, let’s face it, we could all do with some good news.
