Thursday, June 26, 2008

The economic collapse is starting

Well, with no satisfaction, I need to report that the collapse of the UK economy is now starting for real. In the last two days it has become apparent that the consumer cupboard is bare, and that is the signal that the party is now over.

The first bit of news was the poor performance of PC World and Currys as DSG, the owner of the two chains, has plunged from profit to loss. The other piece of news is the massive expansion of business at food discounters at Lidl and Aldi, and the drop in sales at M&S Food Halls.

In short, the UK consumer is no longer able to support the retail sector. Of particular note is that consumers are cutting back on spending on essentials i.e. food. If consumers are cutting back on what they are spending to eat at home, think of the impact on eating out and other luxuries. It is going to be a bloodbath in the restaurant and leisure sectors. A cutback on food shopping is the most significant sign of how much consumers are hurting.

So what happens next?

The sectors that are about to collapse will include the following, (a broad brush on discretionary spending); Retail (upper and mid market offerings) except for food, restaurants,
taxis, gym membership, and hotels. In addition any company involved in home improvement will also be hit, such as small builders, plumbers and so on. The number of consumers cutting back on home improvement will devastate these industries.

The gainers; The discount shops, the collections industry (debt collectors), budget and fast food restaurants. I'm afraid the list is rather short.

The overall effect is that in the next few months unemployment will rise sharply. The impact of job losses has, to a degree, been dampened by the exodus of Polish workers back to Poland, but the depth of the coming shock will be such that this will no longer be sufficient to shield the employment market.

All of this comes as no surprise. The consumer is being squeezed on many fronts. There is the crippling burden of taxation, higher interest rates on mortgages, inflation in oil and food prices, and the psychological impact of the fall in value of their greatest asset (housing).

As I outlined previously, the spiral down into severe depression has started (see my first post on the blog). House prices go down, consumer spending falls, unemployment goes up, house prices fall more, more unemployment, more bankrupts, more house price falls, less consumer spending, government tax revenues drop, government expenses go up, less government spending, more unemployment and so on.

In short, I am sorry to say, the 'end is nigh'. Or at least the end of the UK economy is nigh.

What can be done? At this stage it is too late for the economy as a whole, but for individuals you can do something. Diversify your assets across different financial institutions (some will go bust), save like mad, and hang onto your job for dear life. If you are thinking of quitting your job. Don't.

Sorry for the gloom, but I am just telling it as I see it.

1 comment:

  1. What connection do you see between the 'credit crunch' and high oil prices? While I can see that the housing bubble and our lack of wealth creation were ultimately unsustainable, are we also witnessing a genuine 'peak oil' effect?


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