2013: To spend or not to spend?

Personally I am looking forward to a slightly decadent, irresponsible perhaps, but definitely liberating spend in the January sales and maybe beyond.  My house is finally sold (after a year on the market), my possessions are heading into storage (as I have nowhere to go!) and this is culminating in an unfamiliar sense of freedom – with the prospect of no mortgage or bills to pay (at least for a few months anyway). How satisfying to cancel those direct debits.

My circumstances are obviously far from typical though.   According to a recent Bank of England survey, British households have reined in spending for fear they will be unable to repay debts or gain access to credit.  It appears the majority will be looking to curb spending.

As a corporate researcher I recognise that this cautious attitude to spending is also prevalent amongst large UK corporates.  Confidence in 2012 was certainly not great, with many companies sitting on vast cash reserves – reflecting low M&A levels and risk aversion / fence sitting when it came to real estate spending.  The paradox is that many of these corporates are cash-rich – but will not start to spend until the cash-poor consumers begin spending.  So, for the time being the situation is finely balanced.

In the last few months there has been some evidence to suggest that the tide may be starting to turn.   A number of 2012 year end surveys such as the European Commissions Confidence IndexBaker Tilly’s Outlook 2013 survey, and CMI’s Expectations for 2013 have all indicated improvements in UK corporate confidence.  There seems to be a consensus that business prospects will be better over the course of 2013, although many still harbour concerns over the government’s austerity policies.

Although encouraging, I think this is just a baby step. Signs of weakness in the economy still remain. Significant uplifts in corporate confidence would be required before corporate reserves start to be invested in both the real estate portfolio and in building new capacity or through increased M&A activity. So, whereas my personal spending will be firmly focused on the first quarter,  I am predicting it will take considerably longer for UK corporates to break the risk aversion mindset of the past few years with momentum steadily building as 2013 progresses.