Talking of credit cards, as I have already done this morning, the FT has reported that:
UK consumer card spending fell at its fastest pace since 2021 in November, as uncertainty around the Budget weighed on household purchases during the peak retail season.
The value of card spending declined by an annual rate of 1.1 per cent, the largest drop since February 2021, according to data from Barclays published on Tuesday.
They added:
The data is not adjusted for inflation, which hit 3.6 per cent in October, suggesting an even larger contraction in purchases.
Three thoughts.
First, Barclays will be unhappy. Making money out of credit creation, which is essentially costless, is their whole business model.
Second, Reeve's failure of timing and delivery is writ large all over this. Rarely, if ever, can a Chancellor whose stated goal is growth have done so much by doing so little with such apparent inability to deliver the exact opposite of what she states to be her desire. In any other role, it would be P45 time.
Third, I think people are now genuinely fearful of a recession. And why not? It might be the paradox of thrift, as Lord Keynes would have called it, that is delivering this, but c'est la vie; as he also noted, this is a recessionary phenomenon, and a Chancellor who does not recognise what is happening is not going to do anything to prevent that.
The ship is sinking. The captain and first officer have yet to notice.
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[…] mentioned the economic concept of the paradox of thrift in a post this morning, I realised there was no glossary entry on the subject, so I drafted […]
[…] have already noted Rachel Reeves' incompetence this morning, and suggested the captain is not in charge, or she would not still be in post. It would seem that […]
Several (disconnected) thoughts on this.
First, the idea that spending will recover now “budget uncertainty” is gone seems wrong. I think the caution was, and will remain, for myriad other reasons.
Second, the huge size of credit card debt tells us two things; how little ordinary folk understand interest rates (the average credit card rate is 25%) and how desperate some people are to pay their bills.
Third, this desperation and ignorance is exploited. The car finance scandal is a current one and PPP was another from a few years ago. Opacity and advertising are brutal on the wallet.
Fourth, interest rates are a poor way to control the economy. If 25% on credit cards doesn’t stop people spending we should not be surprised that 1% on/off the base rate does much. We must control credit creation by other means than just price.
Much to agree with.
Could this inability to spend be turned into a refusal to spend? Do consumers have such a leverage – a credit or consumer strike?
They do
There are many boycotts underway in the United States to fight back against the Trump administration. Black Friday sales were down, and some Walmart stores were empty on the day. There’s also the fact that many can’t afford to spend on anything but the essentials. I saw a video by a woman explaining that she worked for a sales team supplying retail. Her bosses were berating her as her team wasn’t meeting sales targets. She was astonished they couldn’t “read the room” and understand why people aren’t spending. Corporate America is predictable and easy to manipulate if enough people can organise. If you damage their bottom line, they will raise prices first, and if that doesn’t work, they will turn on the government.
It’s interesting that a slowdown in credit spending (or just spending) is seen as a bad thing. Yes, it’s not good when people are unable to buy the things they actually need, but all other expenditure represents wasted energy, more microplastics and more general pollution. That sounds like a good thing to reduce.
Chief Engineer might be a better metaphor for the C of the E. They’re the ones who are responsible for keeping the engines running and the lights on for everyone else.