After a slow start to the festive shopping season, consumers are finally turning their attention to Christmas shopping as the big day gets closer. Total consumer spend is expected to reach a record high of £17bn, up 7.65% on the previous year and the predictions look set to ring true. But the tills are unlikely to ring loudly in the New Year, according to Roger Bootle, economic adviser to Deloitte:

“Consumers will wake up on January 1st and come back to reality with a bump as they face the poor state of their finances. Higher utility bills and interest payments mean there is less money left over to spend on January sales. And rapid rises in the number of people looking for work have made it hard for workers to get higher pay rises to compensate them for this.

“Perhaps most importantly, consumers’ love affair with their credit cards appears to be coming to an end. The annual growth rate of credit card borrowing has been plummeting since the start of 2005, as a result of tighter lending criteria by banks, as well as the fact that consumers have been struggling to service debt they have already built up. This is making people think twice about using their plastic.

“Of course, one factor which could encourage households to continue  their Christmas spending nonetheless is the recent rebound in the housing market. Annual house price inflation has recently accelerated to close to double digits again. And this could encourage households to withdraw more equity from their homes.

“Even if consumers do remain in the mood to spend, however, last year is a warning to retailers not to leave people “shopped out” by January. Aggressive discounting before Christmas last year meant that sales rose strongly in November and December, but then collapsed in January.

“Indeed, come the new year, I would not be surprised if consumers wake up with a financial hangover and begin to face up to issues such as their inadequate savings for retirement. The mood amongst retailers post Christmas should therefore be a cautious one.”

Richard Lloyd-Owen, head of the consumer business at Deloitte, said: “According to our research expenditure on gifts is set to increase by 22% in 2006 and this could translate into financial hardship for many. Parents are increasingly under pressure by their kids to buy them the latest 'must-have' toys and ‘pester power’ can be a very persuasive tactic to encourage parents to spend more than they planned. This year’s must have toy is computer games and these soon add up if you have more than one child to buy for.

“In the first week of January when the credit card bill arrives on the door mat some consumers may feel concerned about how much has been spent and how to tackle the repayments. As UK households wake up to greater financial burdens in the New Year the retail sales may not provide the usual allure for consumers. The Christmas sales and the High Street may be much quieter than expected come January 2nd.”

Ends

Notes to editors
This press release has been prepared by Roger Bootle, Economic Adviser to Deloitte.  If you have any questions regarding the views in it, please contact Roger Bootle directly on 020 7823 5000 or via email on business@capitaleconomics.com.

This press release contains general information only and is not intended to be comprehensive nor to provide professional advice.  It is not a substitute for such professional advice and should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business.  Deloitte & Touche LLP accepts no duty of care or liability for any loss occasioned to any person acting or refraining from acting as a result of any material in this publication.

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP which is among the country’s leading professional services firms, providing audit, tax, consulting and corporate finance services. Deloitte & Touche LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu (‘DTT’), a Swiss Verein whose member firms are separate and independent legal entities.  Neither DTT nor any of its member firms has any liability for each other’s omissions.  Services are provided by member firms or their subsidiaries and not by DTT.  Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.  The information contained in this press release is correct at the time of going to press. 

Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.

The information contained in this press release is correct at the time of going to press.