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Interest Rates Rises 'Curb Desire To Spend'

Aug 18, 2007
Britons' desire to save money increased over the course of last month, according to a new set of figures.

In statistics released by Legal & General's MoneyMood Survey, just over two-thirds (62 per cent) of adults were looking to put money away at the end of June. In the corresponding months during both 2005 and 2006 this figure was reported to account for 60 per cent. Meanwhile, the financial services firm also indicated that the number of consumers looking to spend money has continually fallen since August and is presently at its lowest level for some three years at around the 20 per cent barrier.

Julia Clayworth, wealth management customer marketing manager for Legal & General, said: "The Bank of England's monetary policy committee [MPC] has raised the interest rate five times since August, which is good news for savers. So it's hardly surprising that MoneyMood figures show we are in 'save' mode compared to three years ago. But clearly higher interest rates are not good news for borrowers and this is reflected in the fall in the mood to spend since August, which now stands at the lowest level for three years".

Legal & General also indicated that the proportion of households who claim that they have money to spend after paying off bills and servicing debts on personal loans and credit cards has fallen. In June 2006 this figure stood at 61 per cent, however it now stands at 57 per cent. Consequently, Ms Clayworth claimed that over the past year, in which time the MPC has raised the base rate by 1.25 percentage points to six per cent, more consumers are "struggling to make ends meet". As a result, the financial services company claimed that the Bank should wait to judge the full impact of this month's base rate rise before taking the decision on whether to increase it again.

Meanwhile, the effects of recent interest rises were also reported to impact on the corporate spending outlook. According to Lloyds TSB Corporate Markets Business Barometer, those firms questioned in June who expect their business levels to rise accounted for 45 per cent, down from the 61 per cent recorded during May. The fall in confidence was partially attributed to lower spending levels from the public due to the impact the MPC increases have had on their ability to make secured loan repayments. Companies within the service sector were said to have seen the largest decrease in business activity, as those companies said to be feeling optimistic about trading roughly halved from 76 per cent in May to 39 per cent in June.

Trevor Williams, chief economist for Lloyds TSB Corporate Markets, said: "Sentiment seems to be that the combination of higher interest rates, a stronger pound and a reacceleration of input costs will squeeze profit margins. Concerns about interest rates weigh heaviest on the service sector, suggesting firms believe higher rates will sap consumer confidence and hit their sales. This may indicate that last week's rate rise may signal the final chapter in the MPC's efforts to slow the economy and so curb price inflation".
About the Author
Abbi Rouse writes for AllAboutLoans.co.uk, an online loans comparison site, visit us today for information on all loan topics including cheap loans applications and online loans sourcing from all leading UK providers. Our Site: http://news.allaboutloans.co.uk/
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