Its curtains for UK consumer spending

Are you taking part in what many retail analysts are describing as a consumer spending binge this Christmas? It seems that consumers in the UK know that some tough times are around the corner, but are splashing out on one, last big Christmas before the real period of austerity starts to bite…

This article in the Guardian makes for an accessible resource for business students who need to appreciate the factors that affect the overall level of consumer spending in the economy.

As a core part of UK GDP, what happens to consumer spending is a key driver of the rate of economic growth. Businesses who rely on consumer spending for their revenues will be paying close attention to a variety of negative factors that may mean that 2011 is a really tough trading environment. Several factors are mentioned in the article including:

- The rise in VAT from 17.5% to 20% from 4 Jan 2011 - which increases the price of most consumer goods and services overnight
- Rising unemployment as government spending cuts are implemented in full force
- An increase in employees national insurance contributions (which reduces take-home pay and disposable income)
- The loss of a variety of govt benefits, including child benefit for higher income households and ERA for households with students in further education
- A range of inflationary price increases on everyday services like rail fares and postage

Most of us are going to find our disposable income is pretty tight in 2011. So what do we do? Simple. We invest in new pairs of curtains. Demand for curtains has soared (according to the article) as households make an effort to spruce up their lounges and bedrooms ahead of the arrival of hoards of relatives and friends over the Christmas holidays. Now, who would have predicted that?