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A Vizeum view of the economy – March 2014

A very political budget turned out to be more interesting than anticipated thanks to a complete overhaul of the pension system, a reworking of the ISA, the confirmation of a new ‘garden town’ at Ebbsfleet and an extension of the Help to Buy scheme.  It certainly looks as though the policies are specifically aimed at the older generation, recently labelled ‘Generation Wealth’ by Enders and YouGov, who happen to be the most likely group to vote in 2015. The pension reforms provide investment flexibility, and a continuation of ‘Help to Buy’ lowers the barriers to entry for investing in property where rental yields can then be stored in high-return ISAs.  So in a nutshell, if you have money and are part of this older generation you should be all right Jack.

Looking at the broader economy for March 2014, the current consumer view does seem to be more positive with the common belief now that the economy is recovering.  Year-on-Year data also reflects this gradual change in consumer confidence, which suggests that the worst is finally over.  The longer term view shows that we’re within touching distance of pre-recession figures, while the view on the general economic situation has already hit these heights to reach levels not seen since early 2007. Therefore, a positive view from a macro level.

However, this uplift in mood is less dramatic among householders but there is still a significant degree of positivity for the next 12 months, and with employment also on the increase, two much talked-about measures point toward a recovering economy.  The power of these measures lies in their ability to drive perceptions and to use an old adage, ‘perception is reality’.

Our ongoing analysis of the wage/inflation gap and data provided by ASDAs income tracker does suggest that these perceptions are still somewhat disconnected from reality with price inflation still running well ahead of salary inflation (although moving in a positive direction).  This can be explained by a visible increase of pounds in the public’s pocket, a more instant and visible representation than the often nebulous term ‘inflation’.

At an industry sector level the trends we have seen in recent months have continued; all are experiencing a continued positive movement but with a slower rate of growth, rather predictably, as output slack has been reduced.  It’s likely that this slower rate will continue before plateauing during the next parliament as capacity is reached (as predicted by the OBR).

Reviewing GFKs data on likely big purchases, levels have remained predominantly flat in recent months. This suggests an acceptance of the ‘new normal’ as extravagant purchases are still placed on hold despite the positivity surrounding the economy. The lack of increase in savings suggests that consumers are merely muddling through whilst feeling more confident. Indications are that light is finally in view at the end of the tunnel.

 

VIZEUM VIEWPOINT:

The continued progress of the economy can only be good news for households and business however there are still some underlying concerns.  Incomes are still under pressure despite the drop in inflation because businesses still aren’t increasing wages to keep pace, and in real terms this means a decline.  The OBR suggest that the UK will finally recovered to the 2008 level of output this year and that 2018 will see the economy use up its existing slack, which means it will take a decade to fully recover from the recession. Further reseach from the OBR also suggests  the economy is still being driven by consumer spending growth and the overheating property market which could be giving people a false sense of security.  For brands the budget shone a light on a sector of society that are typically under-targeted by businesses. ‘Generation Wealth’ as they have been named have the capital and the means to use it, and the freeing up of their investment choices means they become an even bigger opportuntity for the savvy brand.

James Hankins is Head of Integrated Planning at Vizeum UK

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