A dip in consumer spending could spell disaster for large shopping developments.

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UK recovering depends on debt

By admin1

March 31, 2017

FIRST THE GOOD NEWS: the Office for National Statistics (ONS) has announced that in the last quarter of last year the UK economy grew by 0.7%. The bad news is that this growth was largely funded by domestic consumption, funded by a decrease in personal savings and an increase in personal debt.

The need for the economy to grow is crucial to capitalism – in short, it is this growth which allows interest on savings or investment to be paid. Therein lies the problem: a lack of growth devalues capital, and the whole house of cards can come tumbling down – as we saw in 2008.

Over the last decade, the UK has been trying to recover from the 2008 crash and ensuing recession. The economy needs either to produce more goods and services, or to cut the cost of producing goods and services, in order to begin growing again. That is not what happened in 2016.

Last year saw an increase in consumer spending – by more than the increase in wages – and a decrease in personal savings. The ONS has therefore concluded that although the economy grew, in that more goods and services were bought, this is not true economic growth. It represents a transfer of value held in savings to value held in goods. To put it another way – you can only spend your savings once.

It also seems that there was an increase in personal borrowing over the same period, so people will have to spend their income in future months on repaying that borrowing, rather than continuing their spending. With savings depleted and income diverted to repaying personal loans, the rise in domestic consumption cannot continue.

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