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Britain is back in recession (well, consumers think we are)

Wednesday, February 23, 2011
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What behaviours do consumers exhibit when they believe the economy is heading for (or is in a recession)? These fascinating insights from the latest trading update from Wal-Mart owned Asda give us some clues about how British consumers view the economic situation in Spring 2011.

Margaret Thatcher was fond of a homily in which she suggested that the economy should be run like a well-managed household.  The head of the household (usually a woman?) would budget carefully and make sure that as little as possible was wasted.

Thatcher might be proud of Asda’s customers currently.  According to the trading update, Asda has uncovered evidence of increasingly thrifty behaviour - very similar to that observed during 2008/09 when Britain was in the depths of the last recession.

- Petrol shoppers are adding fuel in round-sum amounts (a sure sign of cash rationing).

- Mums are running down their cupboard stocks (do you remember having a larder as a child?)

- There is less bulk-buying of staple household products to free up cash (in the same way that firms run down their inventories to free up working capital)

- Discount supermarkets like Aldi and Lidl are starting to increase market share again

- Consumers are “investing” in scratch-cards in a desparate attempt to avoid falling disposable incomes (oh the irony!)

Is Britain back in recession?  If the Q1 (2011) GDP figures released in April 2011 show negative growth, then technically we are.  Remember that consumer spending is responsible for about 75% of GDP in the UK. Growing evidence suggests that household spending is weakening in the face of rising inflation, growing unemployment and declining consumer confidence. Watch out for that GDP figure with interest…



 

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