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Monday, 16 May 2011

Consumer Spending To Stay Subdued

According to the Ernst & Young Item Club consumer spending is expected to rise by only 2% a year in the 10 years up to 2020.
Debt repayments, low lending levels and high inflation are seen as the main drag on spending.  The effect is expected to be harshest outside London, the Item Club said. 

The ever present threat of higher interest rates is also taking its toll.  When they will actually rise is a tough call, but the weak pound is beginning to cause headaches for the MPC as most of our inflation is "imported" as a result of high commodity prices.

It goes without saying that retailers will be hardest hit by the low spending levels. There have been a few high profile collapses recently, most notably Focus DIY   However, Focus DIY had been hit by a sluggish housing market, large debts, and intense competition from B&Q and Homebase.

So how do companies plan for the next 6 months.  Well, you need to "think the unthinkable" and stress test your business, or test for "What if" scenarios.  This might be to assume the loss of a major customer.   If you are a retailer then look at wholesale prices going up 5% and customer spend falling 5%.  All this is possible.  What if your cost of capital goes up 10%? 

It pays to be prepared!  Don't forget we offer a free meeting with one of our advisors who can help you plan for difficult times.  

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