/ Money

How’s the economy treating you?

A piggy bank sat on a stack of pound coins

The latest Which? Quarterly Consumer Report reveals a mismatch between perception and reality as confidence is on the rise, yet 1.5 million more families are feeling financially squeezed…

Today sees the one year anniversary of our Consumer Insight Tracker that has been tracking consumer experience of the economy.

It’s safe to say that it’s been a year of ups and downs for the economy. If we look back to the beginning of 2012, we started the year in a double-dip recession (although this has now been ruled out) and attitudes towards the economy and our personal finances were poor.

A year on, people are feeling more optimistic. Yet, there’s a mismatch between this optimism and the reality – more families are finding that their money just isn’t stretching as far as it used to.

From glory to gloom

As you can see in this graph, the Olympics and Diamond Jubilee did wonders for people’s general life satisfaction. Not only did this mean us Brits were feeling more optimistic, it also meant we spent more money which in turn stimulated the economy. However, as winter approached, things like energy prices caused the cost of living to rise again, and following a decline in GDP we felt gloomier about the economy.

Post-Christmas, February 2013 was the month where people felt the worst about their finances and more people were cutting back on their spending, while turning to credit and their savings just to get by. This was also the time where people were most likely to be worried about essential costs (like food and energy), although this worry has stayed high throughout the year.

A year on from the launch of the Which? Consumer Insight Tracker, we find that a third of families, 9 million households, are feeling squeezed, which is up from 7.5 million in June 2012.

Confidence is creeping upwards

Which? Consumer Insight TrackerHowever, confidence has gone up, which coincides with recent positive announcements about the state of the economy. The proportion of people who say the economy will get better in the next year has gone up from 16% in June 2012 to 24% this year, and a lower proportion describe the economy as ‘poor’ (down from 76% to 66%). People are also less likely to cut back on non-essential spending than they were a year ago – things like big ticket household purchases, home improvements and holidays.

Yet, there is a tension in our research – while confidence in the economy is up, people’s spending power has declined. The reality is that households are facing huge inflation on essentials, with food prices up by 4.3%, and gas and electricity bills up by around 8%. Two thirds of the population say that the economy is having a negative impact on their personal finances.

The problem is that this combination of increased confidence to spend yet less money is not sustainable. Consumers may be aiding our fragile economic recovery, but they’re having to get into debt or dip into their savings to do so. Ultimately, the government must do more to keep spiralling housing, food and energy prices in check.

What are your expectations for the coming year? Do you think the economy will pick up or is it further gloom for your household budgets?

Comments
Member

We were in a debt-fuelled economy – government spending, mortgage loans that were too large for incomes, credit cards overused. That was not sustainable and it was inevitable that recovering from that means most living standards fell. Stimulating the economy by simply borrowing more would have made a bigger problem. At least now we seem to be seeing a very gradual improvement – and those with mortgages have benefitted greatly from low interest rates. Letting things continue to happen gradually is the key. We need to keep both government and personal debt under better control – have we learnt that lesson? I think so.

Member

It would be helpful if the government can make a start by taking proper control of the cartel which appears to exist between the major energy companies. These companies appear to have a secret garden from which all outsiders are excluded and that includes the government and the present regulator. If this monopoly was ended competition would lower energy price rises and families would have the confidence to spend more money in other parts of the economy.

Member

I regret to say that nothing has really changed – it can’t in the present system.

The cracks have been papered over and whilst I agree with the previous comment about letting things happen slowly, no lessons have been learnt.

Just yesterday came the announcement that our Government is to use our tax money to help people buy homes. How crazy is that for goodness sake!

We need less Government, much less. As a consequence we will achieve much lower levels of Government spending.

The idea that everyone can have what they want is a myth too. Easy credit to buy things you can’t really afford and don’t really need to keep the economy in a constant state of growth is unsustainable. We have seen that, yet no political party wants to be the one to tell people it is over, so it will continue.

Member

Mark, first I think it is better to buy a home than to rent, if you plan to settle in one place. The problem with mortgage lenders is they want security for their loan, and with the uncertainty of house prices after the crunch they limited the loan to value ratio to protect their money. This means anyone trying to buy first time must find around 20% deposit to get a sensible interest rate – very difficult. So the tax-payer guaranteeing the last 15% of the loan, say, allows these people to buy with a 5% deposit instead of lining a landlord’s pockets.
The key, though, is not what % of loan is provided, it is whether the house is sensibly valued and whether the borrower has the means to make the monthly repayments, even if interest rates rise. This means ensuring that the loan provided does not exceed a sensible multiple of earnings, and those earnings are fairly secure and properly validated. When I bought my house it was 3.5 times. The nonsenses we had before were 5 or 6 times salary, “self-certified” earnings and silly valuations.
Providing we adopt a sensible approach the taxpayers’ interests will be protected and buyers will get on the ladder. However, to allow up to £600 000 is stupid – £250 000 should enable most new buyers to get going, possibly to £350 000 to allow for the London area with a reasonable commute.

Member

Malcolm, I too think it is better to buy than rent if you plan to settle in one place. However it is wrong to use taxpayers’ money to fund purchases. Joint ownership schemes make far more sense.

If you want to buy, and you are required to have a deposit, then save for it as people used to have to do in days gone by. In the meantime live with your parents/family, or rent. Income multiples should be no more than three times earnings. I am also in favour of mortgage rates being fixed for their term too (at sensible rates).

If people cannot afford to buy a property then prices will fall accordingly, in line with the laws of supply and demand. Some people may never be able to afford to buy a property, that is life.

Member

Mark, I don’t think taxpayer’s money is being used to fund purchase – simply to guarantee the balance of the loan. Providing interets rates and loan to earnings values are sensible this should not result in significant defaults. I’d rather this than let investors buy more and more properties to rent out – rents often are similar to or exceed the equvalent mortgage repayments.
To save a 20% deposit means finding up to £50 000 plus incidental costs – very difficult. House prices inevitably rise,so will the deposit, and make it almost impossible to buy. If you can afford the monthly repayments there should be ways made available to get over this major hurdle.

Member
richard says:
24 July 2013

my income from savings has dropped by 90% so {‘m much worse off – the only reason I’m surviving is because I own my own house and my private pension

Member

richard – as you can get 1.5% or more on instant access accounts I’m intrigued to know how you suffered such a large drop. Investment income?

Member
richard says:
25 July 2013

Malcom – my savings interest were paid at a steady 10% before the Tories – Now 0.25 % for the same conditions under the Tories – At 83 I need proper instant access. I’m not interested in changing bank accounts.

Member

richard, not sure how you got 10% – the best I got was 6%. You can still get 1.5% instant access but you seem to need to change accounts – worth it to increase your income by 6 times?

Member
richard says:
28 July 2013

It didn’t INCREASE my income – My Income is WORSE than it was before – Which was asked – And as I trust the savings system I use – I WILL NOT Change – I don’t trust this government AT ALL; TORIES OUT!!

Member

Richard, whilst I am not a poltical fan, I would like to point out that the huge debt we amassed and the crisis that ensued happened under the watch of the previous government. Remember the note left behind “there’s no money left”! Just for balance!
I understand your wish to trust your savings system, but with all registered lenders guaranteeing £85000 in the (unlikely) event of their failure, and 1.5% interest rates on offer, it is possible to significantly increase your income if you wished.
The problem currently is no-one needs your money, so interest rates will stay low – companies have huge cash reserves, government QE gave the banks cheap money.

Member

Never been so skint in my life