Interest Rate Rises Impacting On Consumer Lifestyles

By Stewart Douglas

Consecutive interest rises have led to consumers feeling the heat, according to figures released today in the UK suggesting consumer sales nationwide have fallen over the course of the second quarter.

Over the second quarter of 2007, sales in leisure and travel industries, as well as in personal electronics and healthcare have fallen, whilst professional business services have remained strong.

With the perpetually problematic sub-prime sector in the US placing a strain on bank liquidity worldwide, global finance markets have been quick to reign in lending policy and hide behind rising interest rates.

Simultaneously, the threat of inflation in the UK and the need to move price growth within a manageable target has lead the Bank of England to rapidly increase interest rates over successive months.

Impacting upon the cost of a variable mortgage, interest rates have a wide-ranging impact on consumer wealth, and are intrinsically linked with high street sales.  By raising interest rates, inflation can be brought within manageable levels through a decrease in general product demand, as a direct consequence of the higher price of a mortgage.  As the price of borrowing increases, disposable income decreases, presenting the central bank with an important tool for economic direction.

Analysts have suggested that the combination of both factors could amount to the fall in consumer sales over the period, despite the success of manufacturing industries over the same space of time.

In the study conducted by the CBI, investor confidence was also found to be bleak over the next few months, with fears as to the full range of the sub prime crisis, which has yet to unfold.

Poor weather was also thought to have had an impact on consumer sales, driving customers indoors for practical reasons, whilst inflation in household bills has also thought to contribute.