22 July 2009

UK OUTLOOK FOR CONSUMER SPENDING REMAINS WEAK DESPITE EASING OF FINANCIAL PRESSURE ON HOUSEHOLDS

Alliance Trust’s ongoing study of consumers’ financial wellbeing showed an improvement for the second successive quarter, as household budgets improved and consumers experienced an easing of their financial situation. Overall, however, economic activity remains very weak with negative GDP growth and rising unemployment. Given this backdrop, consumers are likely to continue to rein in spending this year in line with the state of their finances.

The improvement in Alliance Trust’s Financial Reality Index, a bespoke measure of consumer wealth, in the second quarter of 2009, has taken the Index to the highest level since the first quarter of 2008. The headline Financial Reality Index rose to 66.8 in the second quarter of this year, from the previous quarter when it rose to 59.0. With a history of falling continuously since mid-2007, the rise in the Index over the last two quarters is an encouraging result.

Shona Dobbie, Head of Alliance Trust Research, said, “Today’s results provide yet more hope to consumers that the critical situation they are in is beginning to ease slightly. However, they still remain under significant pressure, and although the index shows that household budgets have continued to improve, due to lower inflation and falling mortgage rates, this figure remains well below the critical level of 100. Our research suggests that the conditions facing consumers are still far from favourable, and they will continue to rein in their spending for some time to come.

Despite the ongoing improvement in our Financial Reality Index, the overall outlook for consumers is tough, with economic activity remaining weak and unemployment continuing to rise. Until this situation improves significantly, we cannot expect household expenditure to improve markedly, and we anticipate that consumer spending will remain weak through the remainder of 2009.”

The main findings of the second quarter Financial Reality Index were:

· The economic background improved slightly from last quarter’s record low of 61.7, to 68.0. This was helped by lower interest rates and falling inflation which has helped some households avoid insolvency. Despite the rise, this remains below the critical level of 100, and with unemployment increasing, the outlook remains tough.

· Household budgets improved once again during the quarter, from 90.4 to 103.2, rising above 100 for the first time since Q2 2002. This was due to a combination of lower rates of inflation that are boosting real income and lowering basic costs, and lower mortgage rates that have helped ease some household budget pressures.

· Net wealth showed only minimal improvement, rising from 4.1 to 4.9, reflecting ongoing weakness in house prices and poor annual performance in equity markets. These factors continue to take their toll on the net wealth of households.

The full Financial Reality Index factsheet is available at www.alliancetrust.co.uk/research

Contacts

Clare Dundas/Anjali Unnikrishnan

Finsbury

Tel: +44 (0)20 7251 3801

Email: alliancetrust@finsbury.com

Notes to editors

1. Alliance Trust PLC is a self-managed investment company with investment trust status. A FTSE-100 company, it is the largest generalist UK investment trust by assets listed on the London Stock Exchange.

2. Founded in 1888, the company is based in Dundee and has offices in Edinburgh and London.

3. The Research Centre is part of Alliance Trust and was formed to carry out economic and social analysis to deepen our understanding of economies, markets and socio-economic issues.

4. Photographs of Shona Dobbie are available.