Mortgage Defaults, Retail Profit Warnings And Consumer Fear; Itís Bad News All Round...

A combination of a rise in mortgage defaults and a drop in retail sales are causing consumer confidence in the economy’s recovery to plummet, says Insolvency Company


On the same day that the Bank of England reported the number of mortgage defaults, Laura Ashley and Mothercare reported serious drops in sales and GfK NOP Social Research reported the British public’s confidence has slumped worringly.


The latest credit conditions report from the Bank of England shows that the number mortgage defaults suddenly jumped during the last quarter, with more defaults expected to be reported in the next quarter of 2012. There are also fears that many more mortgages will be in default if the interest rates rises goes ahead.

The retail sector is showing signs of distress to, with Mothercare and Laura Ashley reporting like-for-like sales falling by 2.4% and 4.2% in the last eight weeks, with both companies’ shares falling by almost 10% each.


To shift stock, Mothercare was forced to slash its prices after Christmas last year with the serious resulting impact on its profit margins. "The UK trading environment remains difficult with weaker consumer demand and lower footfall," said Chief Executive Ben Gordon. "In the UK, we expect the consumer environment will be challenging and, accordingly, we are planning cautiously."


Laura Ashley is experiencing similar problems, despite it almost doubling its profits to £19.3 million in the 52 weeks to the end of January. "There has been a decline in performance since the beginning of February, which we attribute to a general weakening in the consumer economy," said Tan Sri Dr. K P Khoo, chairman of Laura Ashley.

To rub salt into the retail wound, Dixons posted a profit warning while Hennes and Mauritz (H&M) saw a 30% drop in profits for the last three months, due in part to the rising cost of cotton which the company had absorbed rather than pass on to consumers.


Two days after all of these shock profit warnings the reasons why became clear. GfK NOP Social Research posted the results of a recent survey showing that household disposable income has shrunk in real terms for the first time in 30 years. Consumer confidence was low in January due to the slow economic recovery, VAT rises and public spending cuts, yet three months on things have showed no signs of improving.


Nick Moon, managing director of GfK NOP Social Research said: "This month's figures show how badly some form of stimulus is needed. The last time it was this consistently low was two years ago and, before then, in autumn 1990."


The lack of recovery in consumer confidence since January is also giving Howard Archer, Chief UK Economist at IHS Global Insight, cause for concern and commented that the situation "somewhat worrying."


"Consumer confidence remains extremely weak, thereby maintaining concern that consumers will be very cautious in their spending over the coming months in the face of serious headwinds," Archer said.


A spokesperson for one of Scotland’s leading Insolvency Companies, isn’t surprised. “Of course consumer confidence is low. In the last three months we’ve seen a severe bout of poor weather with the accompanying disruption, Christmas, VAT rises, public spending cuts and the subsequent redundancies they bring, bank restrictions on credit, rising APRs on loans and credit cards and increases in the cost of groceries and basic utilities. People are seeing increasing raids on their bank accounts to pay for spiraling costs of food and petrol, and they simply don’t have the money to pay for high street goods. They are turning to the Internet to find bargains or simply going without if they can’t.”


“It’s not rocket science. Our advice line is being jammed by people without two pennies to rub together desperately trying to find solutions to their debt problems before they have to declare insolvency. We’ve spoken to adults in their thirties and forties moving back in with their parents to try and make ends meet, and young adults under 25 with no better prospects than the next few years on the dole.”


“The economists have to stop scratching their heads in amazement that things are still bad and start living in the real world. When the bank cuts off your credit and all your disposable income goes on living expenses and getting to work, you’re not going to be tripping down to Laura Ashley for a new outfit,” concluded the spokesperson.



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