The Chancellor, George Osborne, is busy telling everyone that the UK economy has turned a corner and the worst days of the economic crisis are behind us. He may be right. In the first half of this year the economy grew by 0.7% and the OECD reckons that growth of the UK’s gross domestic product (GDP) could reach as high as 1.5% by the end of the year. The average shopper may think that these figures have little to do with them, but they should think again.
According to the World Bank, household spending makes up an incredible 66% of the UK’s GDP. While the politicians debate the importance of various industries, such as banking, defence or manufacturing, to the UK, the fact is that the humble British shopper dwarfs all of these in importance. Consumer spending is, in fact, worth twice as much to the UK economy as all business and industry put together. This gives an idea of the importance of shopping to the UK’s economic health. In short, the UK is a consumer economy and if our high streets and retail parks aren’t full of shoppers, the economy comes to a crunching halt.
The Importance of Consumer Confidence
It is no wonder, then, that politicians and economists keep a wary eye on consumer spending. When confidence is low, as it was during the credit-crunch years, consumer spending falls dramatically. When confidence returns, as it appears to be doing, shoppers return to the high street and the economy grows. One of the best indications of consumer confidence is those big-ticket discretionary purchases. Buying cars is a great example. For most people, buying a car is the second-biggest purchase behind buying a house. When confidence is low, many people simply postpone buying a new car and keep their existing vehicle for another year.
Car Sales Lead the Way
This makes the current sales figures for new cars in the UK especially welcome. According to the Society of Motor Manufacturers and Traders (SMMT), UK sales of new cars have risen for 20 consecutive months up to October this year. Private sales have been vital in driving this rise, increasing by almost 16% over last year. Demand for used cars in the UK is also rising sharply, and the AA has reported that the increase in demand has pushed up prices by over 10% in the last year.
Although most of the media’s attention is focused on new cars, the used-car market in the UK is vital. Research by the Centre for Automotive Management at the University of Buckingham shows that for every new car sold, more than three used cars are sold. With used cars accounting for the vast majority of car sales and car sales representing the largest item of consumer spending, it is not an exaggeration to say that the used-car market is absolutely vital to the health of the UK economy. The next time you venture out on to the car dealer’s forecourt, remember that you are not only buying yourself a new car — you are instrumental in driving the country’s economy towards growth and prosperity.
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