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Good news for the prudent: we’re heading for recession

Richard Northedge

Wednesday, 9th July 2008

Richard Northedge says those who did not overspend during the boom years will soon be able to buy whatever they want at bargain prices, perhaps even with borrowed money

Well tomorrow has arrived. The high-spenders may still have their leather-look three-piece suites but the holiday is long forgotten and the time-share apartment is all but worthless. They cannot withdraw more equity from their homes because tumbling property prices have eroded the equity. Yet the loan repayments continue and the mortgage’s low-rate period is about to end. Those who overconsumed when the economy was growing — whose overconsumption provided the growth — are now paying for it. Literally. They’ve had their time, and it’s time for the rest of us to start partying. Indeed, with inflation soaring, better to spend our savings than leave the money to shrivel in the bank.

It is not the economic slowdown that is forcing people to stop spending: it is their reduced spending that is causing the slowdown. Ask Marks & Spencer or John Lewis, or those retailers that have already gone into administration for lack of trade. It does not matter that we are not yet technically in recession, which would require two consecutive quarters of negative economic growth; opinion polls show a large part of the population think growth is already negative, and if they adapt their spending to reflect their belief, then they will take us that step closer to actual recession.

The weekly news of falling house prices tells people they are less wealthy and reduces their confidence to spend; increases in the costs of petrol, heating, food and mortgages leave less disposable income for life’s luxuries; warnings of job losses intensify the sense of foreboding. It is no wonder the high street is set for summer sales that will extend into mid-season promotions, autumn events and January sales that will start long before Christmas.

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