Cash Piggy

In the process of digging up old articles from the Economist, I stumbled across “The storm to come” - authored by Anatole Kaletsky and published in the November issue of 2007. The slowdown had just begun, and it appears the aftermath of the storm had been underestimated. Quite understandably so, since it was a period of blossoms and rich harvest. Unemployment levels were low and the prices were still stable. The forecast carried no severity and for people, it just meant a temporary dip in GDP growth. They had no reason to check their expenditure or save up for the 'rainy' day. In short, the prosperity experienced since 1997 had given rise to complacency. Sure enough, a year later the slump pulled the rug of financial security from under their feet. The gravity of the slowdown reflected in the 0% growth in GDP in the second quarter of 2008.

The first month of 2009 brought some relief for growth-starved UK. Retail sales in food saw a growth spurt, which many believe is a result of the heavy discounts offered to shoppers. Data showed an increase of 5.1% as compared to the previous quarter and a growth of 1.1% vis-a-vis the same time last year. It is heartening to note that the joy is being shared equally by the consumer as well as the retailer. However, the British Retail Consortium has warned against renewed hope before the spurt consolidates to a steady growth curve. This is owed to the “strong promotional activity” in December 2008, as quoted by KPMG's head of retail Helen Dickinson, which carried on till January this year. For people who were impulsive in extrapolating these promising figures, this is not good news at all. At least, not until the next few months prove that the growth is not confined to January alone.

The economic slump is expected to continue for another year at least. Ironically, this global phenomenon isn't exactly global. Countries like China and India are expected to see positive growth, although not as high as the last few years. In the UK, when the leak could've been plugged, the labor party had no measures in place to raise taxes. Now that the economy has weakened further, any attempt to redeem it is being viewed as a move of desperation. It is evident from the results that this observation isn't far from the truth.

In a consumer-driven market, people are truly spoilt for choice. Are they, really? Taking today’s feeble economy into account, consumers are left with fewer options to bargain with or sift through to make a choice relevant to their needs. Going a step further in shattering erstwhile ‘choice’ notions, increasing commodity prices and shrinking household budgets have forced consumers to settle with the ‘lowest priced’ product. Spurred by this drastic change in customer preferences, big brands have fallen to the lure of discounting strategies. With the price wars intensifying at the lower rungs, it is expected that the ensuing benefits will be passed on to the customer. A bright side to the crisis, the drop in food prices recently reflects this positive transformation. One hopes that this change is contagious, bringing about a deflation in prices of other essential commodities and contributing to the succour that Brits badly need.

Fancy earning your daily bread at a Chicken place? Amidst recession thralls and unemployment blues, a food chain has announced the availability of 9000 jobs in the next 3-5 years. Household name KFC is setting the ground for 200-300 new food outlets in Britain and Ireland. And the whole exercise is going to set the fried chicken experts back by £100-150 million. Although the move is not expected to make a significant difference to the unemployment scenario, it surely offers a ray of hope for people who are on the verge of bankruptcy and are looking to evade it. KFC's announcement comes at a time when revival seems improbable till 2010. However, it has to be noted that this plan is long-term and there is a high possibility that the economy will recover before the impact of this initiative is registered.

The figures for 2009 are in. Around 2.5 million Brits would have lost their jobs before we reach the second half of this year. The number was around 1.7 million a few months ago, when the first casualties in the banking sector were registered. Those reeling under the meltdown also found, to their dismay, other doors closing shut. Lenders began to play it very safe, choking credit availability and raising the lending bar quite high. This is not expected to change till the second quarter of 2009.

Amidst all the gloom, a ray of hope arrived through Bank of England's decision to chop the interest rate to 1.5% from 2%. The first significant step to battle recession, this move will ease the pressure off debtors. However, these rate cuts will leave the savers disgruntled, since the returns will be lesser now. For people looking to borrow, this piece of news would mean little since credit streams have already run dry. Opinions about the efficacy of this move, therefore, are divided. However, all hope is not lost for the afflicted. The government has apparently announced plans to offer tax concessions to the saving population and relief packages for the credit-hungry.