Perception driving downturn in the UK economy, according to new Experian report

News release

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Stephanie Dobson
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Perception driving downturn in the UK economy, according to new Experian report

Nottingham, UK, 2 March 2009 - New analysis published today by Experian^®, the global information services company, suggests that perception and recessionary behaviours amongst UK consumers and businesses are helping to drive down the economy. 

The Experian Insight Report draws on the company’s consumer and business data insight to identify significant new trends emerging in the UK economy. The report suggests that consumer behaviour is out of synch with the real state of the economy – fuelled by a ‘feel bad factor’ based on perceived threats to personal and financial wellbeing.  From the business perspective, fewer companies are starting up, in part due to a fear of failure and lack of confidence as raw business failures increase.  However, Experian’s analysis shows that while business failure rates have been rising since 2007, measured against the growth in the number of businesses, the failure rate has been flat for ten years and a focus on start-ups is needed to prevent an increase in the future.

The report’s key insights reveal that:

The UK consumer landscape:

• Despite being the best placed to ride out a recession, some consumer groups with a high share of income generating assets are cutting back on spending the most.
• Although less than half of adults believe that their own personal finances will worsen over the next six months, 90 per cent have actually changed their financial behaviour and consumption habits already.
• Cut-backs on out-of-home entertainment and treats have already been made, and bigger purchases and lifestyle decisions are coming under the microscope.  UK adults are delaying buying property (30%), cancelling plans to change jobs (27%) or delaying having children (23% of 23-25 year olds).
• Value for money is top of the consumer agenda and retailers perceived as discounters, including the supermarkets, will be the best-equipped to weather the retail storm.
• UK consumers have discovered a new appetite for discount vouchers, with online voucher searches up 143% and a host of new websites appearing to feed this demand.
• Brand loyalty is set to decline as ‘empowered consumers’ now look for better service and combine off-and-online shopping in search for a bargain to satisfy their ‘fashionable thrift’ mindset.

The UK business landscape:

• The real rate of insolvencies is far from reaching recessionary levels. By tracking historical trends back to 1990, Experian’s analysis shows that the current insolvency rate (insolvencies as a proportion of the total business population) is at a benign 2004 level.
• A lack of business confidence saw business start up rates in 2008 fall significantly below 2007 levels and payment data shows that larger companies are holding on to their cash, yet Experian’s analysis shows that the majority of businesses can still be protected from recession if action is taken now.
  
• The lag of two to three quarters between shrinkage in Gross Domestic Product (GDP) and a corresponding increase in insolvencies suggests a six month window of opportunity for new policies to prevent a huge increase in business failures approaching 1991 levels.
• Analysis of the financial solidity of all Companies House registered businesses points to only a slight decline in the financial strength of the business population since late 2006.

Charlotte Hogg, Managing Director of Experian UK & Ireland, commented:
“In today’s ‘always on’ society, the volume of 24/7 information at consumers’ finger tips means that perception and belief are far more important to the real activity of the economy than they ever were before.  Whilst people are better informed now than they were during the last recession in the early Nineties, it does not necessarily equate to them feeling better. In fact, our analysis reveals that we are seeing consumers react altogether more dramatically to the state of the economy and certainly in unexpected quarters. 

“For consumers, perception is important and changing the psychology of this recession is as important as traditional policy tools. Equally, organisations need a clear picture of the state of their business and to tie into changing consumer behaviours. Hard data is critical to distinguishing between perception and reality, and will play a critical role supporting businesses and consumers through the next three months and beyond.”