Spending spree short and sweet

People hold on to their windfall shares r Volatile week ahead for equities r Increase in firms in `intensive care'

Less than a quarter of the pounds 30bn of windfalls from converting building societies will be spent, according to a survey of the mutuals' former members. The research, published today by investment bank Robert Fleming, forecasts a boom in spending on home improvements, holidays and electrical goods, but expects the spending surge to be short-lived.

Though more than pounds 8bn of the total windfall payouts will be injected into the domestic economy, Fleming's research shows that the high import content of this expenditure will dilute the effect on Britain's GDP to 0.5 per cent this year.

Robert Fleming's economic adviser, Peter Warburton, says that with the surge in consumer confidence over the past six months expected to be reversed in the autumn there is no need to push interest rates higher to fend off a feared high street boom: "We found only a small minority of the respondents whose new-found spending confidence will continue at the expense of saving. The surge in consumer confidence is likely to be reversed quite rapidly this autumn."

The findings of the report echo comments from the Bank of England in which it suggested the four quarter-point interest rate rises in as many months would be enough to keep inflation on track to meet its 2.5 per cent target.

The Bank last week announced plans for its own investigation into the economic effects of the windfall factor.

Mr Warburton said: "The comparison with 1988, when real wages rose strongly and home-owners borrowed to excess, is poorly made. On the basis of the survey evidence, there is no case for hitting the consumer with further interest rate increases."

The survey is one of the first to attempt to pinpoint what former building society members have done with the windfalls that gave investors and borrowers an average of more than pounds 2,000 each in shares. Fleming calculated that the flotations of Halifax, Alliance & Leicester, Woolwich and Norwich Union, and those such as Northern Rock that were still to come, would release a total of pounds 8.2bn of spending power. Of that, pounds 2.1bn would be spent on home improvements, furnishings and DIY, pounds 2.1bn on holidays and travel and pounds 700m on electrical items for the home.

The detailed breakdown of the survey by age and social class revealed interesting differences in spending patterns. A fifth of young ABC1 professionals between the ages of 15 and 34 spent most of their windfalls on a car or motorbike, a much greater proportion than older people in the same social class.

A quarter of young C2DEs chose to spend their cash on electrical items. There was hardly any preference among ABC1s for electrical goods.

Middle-aged and older people from professional and managerial classes were more likely to use their windfalls to travel.

More than three quarters of windfall shares have been saved or used to repay debt. The high savings rate is expected to inject pounds 4bn of new business into the PEP and unit trust industry, but most of the new PEP accounts will be with the converting institutions themselves. Banks and building societies are expected to receive up to a further pounds 4bn of cash inflows.

A separate Harris poll of 168 MPs showed three quarters were in favour of maintaining the mutual status of building societies and life companies. The report was commissioned by NPI, the pensions and investment management group.

PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
people
Life and Style
President Obama, one of the more enthusiastic users of the fist bump
science
Arts and Entertainment
Peter Griffin holds forth in The Simpsons Family Guy crossover episode
tv
Life and Style
Upright, everything’s all right (to a point): remaining on one’s feet has its health benefits – though in moderation
HealthIf sitting is bad for your health, what happens when you stay on your feet for a whole month?
News
Kristen Stewart and Rupert Sanders were pictured embracing in 2012
people
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

£350 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

HR Business Analyst, Bristol, £350-400pd

£350 - £400 per day + competitive: Orgtel: My client, a leading bank, is curre...

Account Manager - (Product & Account Management, Marketing)

£26000 - £30000 per annum + Benefits: Ashdown Group: Account Manager - (Produc...

Training/Learning and Development Coordinator -London

£28000 - £32000 per annum: Ashdown Group: Training/Learning and Development Co...

Day In a Page

A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on
It's the best of British art... but not all is on display

It's the best of British art... but not all is on display

Voted for by the British public, the artworks on Art Everywhere posters may be the only place where they can be seen
Critic claims 'I was the inspiration for Blanche DuBois'

Critic claims 'I was the inspiration for Blanche DuBois'

Blanche Marvin reveals how Tennessee Williams used her name and an off-the-cuff remark to create an iconic character
Sometimes it's hard to be a literary novelist

Sometimes it's hard to be a literary novelist

Websites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

Edinburgh Fringe 2014

The comedy highlights, from Bridget Christie to Jack Dee
Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

The woman stepping down as chair of the Heritage Lottery Fund is worried