22 January 2008
Consumers ignoring
worsening financial reality as budgets take more strain
Alliance
Trust’s unique measure of consumer financial wellbeing shows worrying fall in
the fourth quarter of 2007 as pressure mounts from rising prices, increased debt
and slowing house price growth.
Consumers are facing increasingly
extreme pressure on their day-to-day costs with rising food and fuel prices and
a higher burden of debt, according to the latest results of an independent
study that tracks consumers’ financial wellbeing. The leading economic research
team’s Financial Reality Index, which analyses a range of key factors affecting
consumers’ underlying financial wellbeing, saw its biggest fall in 18 months as
a build up of pressures put households under greater strain.
The index tumbled 10 per cent, from
88.6 in the previous quarter to 79.7 in the fourth quarter (October-December
2007), one of the lowest levels in the study’s 11 year history. But while consumer spending continued to defy
this underlying financial reality, Alliance Trust expects households to react
to their worsening economic situation during the next 12 months by reining in
their spending. On this index, a measure of 100 indicates consumers’ overall
financial situation is around average for the long term, with a below-100
reading meaning people are facing worse-than-average financial pressures.
Head of Alliance Trust Research Centre
Shona Dobbie said, “Our latest Financial
Reality report highlights how acute the consumer’s predicament has become. Our
measure of consumer wellbeing shows a worsening picture not only for household
budgets, but for consumers’ net wealth and the economy as well. This is the
first time since the end of 2004 that all these elements that make up consumer
wellbeing have fallen at the same time. We are seeing particular pressure on
budgets with higher food and fuel prices and heavy levels of debt and mortgage
payments.”
“Given
the level of strain on household budgets, we expect consumer spending to slow
further over the next year, even though current spending levels show people
have yet to take full stock of their financial reality. Our study shows that
consumers have apparently spent beyond their means for the last two years,
resulting in ever higher levels of debt. This trend is set to end, however,
since there are additional pressures on households’ financial wellbeing because
of a downturn in those factors that affect their net wealth such as the poorest
quarter on the stock market in four years, rising debt levels and the cooling
of house price growth,” she said.
·
A
copy of the full Financial Reality Index analysis report for the fourth quarter
2007 by
Contacts
Jane Holligan, Media Relations Manager Anna Schirmer/Stuart
Lerman/Anna Moulds Tel +44
(0)1382 306064 Tel +44
(0)20 7490 8828 Mobile 07745 783212 Email alliancetrust@lansons.com Email jane.holligan@alliancetrust.co.uk Web www.alliancetrust.co.uk
|
Notes to editors
- Alliance Trust Research Centre was formed to provide economic and social analysis to
deepen understanding of economies, markets and socio-economic issues.
The Research Centre is part of Alliance Trust, which is a FTSE-250
investment company.
- Photographs of Shona Dobbie are
available.
- Alliance Trust Research Centre’s Financial
Reality Index is based on a quarterly analysis of 11 underlying national
and household indicators. These indicators are grouped into three factors
that make up the Financial Reality Index – household budget, net wealth and
economic background. A measure of 100 means an indicator
or group of indicators are running at around their long-term average,
while a below-100 score indicates a worse-than-average situation.