Britain's New Scrooges Threaten Its EconomyA new mood of austerity is sweeping Britain. In recent months, savings rates have more than doubled while spending on big-ticket items such as flat-screen TVs has declined at the fastest rate in decades. What's more, official statistics released on Sept. 1 show Britons' $2.4 trillion in personal debt has fallen for the first time since 1993.
The newfound frugality should be cause for celebration. For years, economists have felt British consumers—who have the world's highest debt levels relative to discretionary income (more than a third higher than Americans')—should rein in spending. Many pointed to the thrifty habits of consumers in France and Germany, where double-digit savings rates and a general aversion to credit limited the excesses of the pre-credit-crunch era.
But that was before the Great Recession. Now policymakers fret that Britain's penny-pinching may do more harm than good. "The lack of spending is holding back the recovery," says Andrew Goodwin, an adviser to the Ernst & Young ITEM club, an economic forecasting group.
The economy is in dire need of a boost. Britain's reliance on the financial industry made it particularly vulnerable when global credit markets collapsed. Second-quarter gross domestic product contracted 5.5% year on year, and the jobless rate—usually among the lowest in Europe—is at 7.8% and could soon top 10%. With banks struggling, consumers were expected to come to the rescue. Last year Prime Minister Gordon Brown cut the value-added sales tax to 15%, from 17.5%, in hopes of persuading citizens to open their wallets. Other incentives, including a successful $495 million cash-for-clunkers program, followed.
But aside from a slight bump in spending at the start of this year, consumers don't appear to be parting with their money. Nonfood sales for June to August, for instance, fell 0.7% year over year. And fears that the recession will continue well into 2010 have kept consumer confidence at a 12-month low. "People are scarred from recent experiences," says Alan Smith, managing director at financial adviser Capital Asset Management. "They want to clear debt as quickly as possible."
Total personal borrowing in July—loans, credit cards, and mortgages—fell $1 billion as Britons took advantage of historically low interest rates to rejigger their finances.
The increased saving should help Britain's economy in the long run. With personal indebtedness at 183% of disposable income (vs. U.S. consumers' 134%), the new thriftiness will put houshold finances on a more even keel. In the near term, "the adjustment to less debt will be severe," says Jamie Dannhauser, economist at London's Lombard Street Research. "But it's exactly what Britain has to do."Where Landing a Job Is EasiestLooking for work? Head for Des Moines, one of the most attractive cities for job seekers, according to a new survey by SimplyHired.com, a Web site that aggregates online job listings. The company recently analyzed 3 million public- and private-sector job postings—measuring the number of job seekers interested in each opening to determine the most and least competitive U.S. markets. Along with Des Moines, home of such insurers as Principal Financial Group (PFG), other employment havens for both blue- and white-collar workers include Washington—Uncle Sam is still hiring—and Omaha, home to Warren Buffett and food giant ConAgra (CAG).
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