Spend spend spend!

Reading the Guardian this morning it was hard to see why the newspapers are so concerned about the fall in advertising expenditure. Today's paper was full of large glossy adverts from various retailers offering special discounts to get consumers back into their stores.

Just look at these headlines:

Laura Ashley: 25% off everything Mega weekend
M&S: One day spectacular with 20% off everything for today
Debenhams: Festival with 20% off for three days.

If this is not enough to get us all spending, the Government's cut in VAT kicks in this week. And finally the Bank of England is expected to follow up last month's 150 basis point cut in the Repo Rate with a further sizeable reduction at lunchtime today. We might even see UK interest rates fall to an all time low. The question is will all these measures work?

If economics was an exact science we could examine some hard evidence of how consumers have reacted in previous recessions to find the precise inducement needed to produce a set increase in consumer spending. Sadly the reality is that even if you employed the top ten economists in the World and paid them a fortune (By the way I am cheap and available!) they could not say with any certainty just how consumers will react. We are all independent and relatively free decision-makers and we might just decide to ignore the inducements and just leave our money in the bank.

For what it is worth (probably not too much!) my own guess is that caution will prevail and consumers will not all rush out to spend what little cash they have. They have been scared by the onset of a severe economic downturn and they fear that theyl could lose their jobs. Against this background any hopes that the British consumer will once again lead the economy out of the wilderness might be dashed. The sensible ones will hold onto their cash because the prices of goods and services on the high street could soon be falling a good deal more.