Does Austerity Mean Debt?
Buried within the many spreadsheets and reports on the UK’ Economic and Fiscal Outlook published on 28 March 2011, the Office of Budget Responsibility (OBR) published one very interesting set of data concerning household borrowing and debt.
In another part of the report, the OBR estimates that public sector net borrowing (PSNB) will decrease from £156 billion (11.1% of GDP) in 2009-10 to £18 billion (1.5% of GDP) by 2015-16.
However, the numbers published by the OBR do not fit the rhetoric. The OBR estimates that private consumption will see growth of 0.4% in 2011, 0.8% in 2012, 1.2% in 2013, 1.3% in 2014 and 1.4% in 2015. These are not household consumption boom numbers, but nevertheless the OBR’ estimates indicate that they are contributions to GDP growth. So households are not significantly increasing expenditure, but they are not dramatically cutting back either.
From earnings growth? Unlikely. Average earnings growth will remain behind inflation until almost the end of 2012 and will be catching up the gap until the end of 2014.
From household savings? Some consumption will be financed from savings. The OBR forecasts that average household savings will come down from 4.6% of yearly income in 2011 to 3.4% in 2015, but nowhere enough to keep households’ consumption in track.
All data seem to point out that private consumption will be financed from debt, and that government debt is being shifted to households, as families need to make up with their budget the government cutbacks so to be able to maintain their living standards. So the average household debt will increase from £58,000 in 2010 to £77,309 in 2015 (November’ forecast put this last number at £66,291).
What does this mean to the betting and gambling businesses operating in the UK? For one thing, margins are going to be incredibly tight, as households will be very careful on what they spend their money on, but the numbers do not indicate dramatic cutbacks on overall spending. In these economic conditions client loyalty is paramount, but it is also important that marketing expenditure is targeted toward identifying clients with good credit and employed in sectors with growth potential. But it also means that for strong growth prospects, operators need to go abroad.