The UK recession is good for lots of people

All is not doom and gloom.

The way the recession is affecting consumers in the UK is nothing like the previous bad times.

The economic pundits keep comparing it with the really bad times we had in 1990 but as this chart from the excellent presentation from Lord Turner at the FSA shows, interest payments are now much smaller as a percentage of income than back then.

In his speech he says

The extent to which mortgagees have benefited from this fall has been highly variable.

Some – with tracker mortgages – are enjoying spectacular decreases in mortgage interest payments, some much milder benefits, but only a minority of people (for instance, among subprime borrowers coming off very low fixed-rate deals) are likely to face a material rise in mortgage payments. And on average the effect is very significant, with total household disposable income after taxes and mortgage interest payments, actually up 6% over the year to Q4 2008.

Falling house prices may shift many people into negative equity, and a rise in unemployment will produce an increase in arrears and defaults, but compared to the early 1990s, we are less likely to see mortgage repayment problems among the vast majority of people who, even under the most extreme forecasts for unemployment, will still be in a job.

The distinction between the employed and the unemployed in the UK is huge. You might be employed and feeling grumpy and frightened about the future but actually you are doing financially OK - even more than that you might be doing very well.

If you are unemployed then the chances of you getting a new job is remote and you are really feeling the pain.

Marketers need to understand the difference between real and perceived pain and adapt their campaigns accordingly. Dick Stroud