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Could perception be helping to drive down the economy?

Welcome to the first Experian Insight Report for the UK, which uses our unique consumer and business information to identify new trends emerging in the UK economy. In the last year, a series of seismic events have left an indelible mark on business life as we know it. The rules of the game have changed, but what of the effects on consumers and businesses in the UK? Based on our analysis, a consistent theme is emerging. Perception is at least as influential as reality in driving the economy.

Belief may be outweighing facts. Perception and beliefs are becoming far more important to the real activity of the economy than they have ever been before, especially in today’s ‘always on’ society when news and information can be disseminated across the globe in a nanosecond. While many of us still receive our news from traditional media sources, online searches for ‘interest rates’, ‘petrol prices’ and the ‘credit crunch’ have rocketed.

The majority of consumers (82%) feel very or fairly well informed – but being informed doesn’t mean feeling better. Instant access to information in all its guises appears to lead to heightened concerns about the state of the world and local and global economies. Ironically, some of those consumers who appear to be most concerned are actually those least at risk of the global downturn. Unfortunately, this is translating into lower spending, which could well have a disproportionate effect on the economy. For those consumers still spending, the focus is on value first and foremost. The rules of engagement, as far as today’s consumers are concerned, are all about using offline and online information channels to locate the best deals possible and vouchers are flavour of the month. This explains the peak in online activity on Boxing Day. They find what they want online and get the best value when they hit the high street. Turning to the business environment, a similar picture emerges.

The majority of consumers (82%) feel very or fairly well informed – but being informed doesn’t mean feeling better.Clearly, in raw volume terms, the number of business failures is increasing. Also, the underlying health of businesses appears to be worsening, as evidenced by our credit scores. Certain sectors are feeling the pressure more than others and, unsurprisingly, retailers are in the spotlight. As with consumers, businesses are changing their behaviour to adapt to today’s climate. In particular, they are hoarding cash as payment rates decline, and anecdotally, taking down their credit lines. They are also not starting up. While there is considerable concern about the level of bank lending to businesses, it could also be true that concern from would be entrepreneurs is contributing to the drop in start-ups. As with consumers, we may be witnessing perception playing a central role in driving reality.

This view is supported by our insights into the rate of business failures (number of failures over total businesses). This rate is not yet out of line with decade long historical trends, as this picture holds across sectors, geographies and business sizes. Contrary to the views of some commentators that businesses are facing Armageddon, our insight suggests that companies have not fallen off the cliff yet, but the hill is getting steeper. What can be argued from these trends? For consumers, perception is important and changing the psychology of this recession is as important as traditional policy tools. Equally, organisations need a clear picture of the state of their business and to tie into changing consumer behaviours. Value and the integration of online and offline channels are key. For policy, hard data is critical so they can distinguish between reality and belief, and can differentiate the tools they use to support businesses and consumers through the next quarter and beyond.

These are clearly tougher economic times, and businesses and consumers will be under considerable pressure. We need the facts to manage through it.

Charlotte Hogg
Managing Director
Experian UK and Ireland

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