A reader survey on FT.com, the online version of the Financial Times, indicates that the holiday industry may have a tough time if, and when, interest rates start to rise. Simply, if interest rates start to rise, holidays are number 1 on the hit list for likely household cost savings.
As the chart above shows more than a fifth of respondents see holidays as their first port of call when it comes to money saving measures. Interestingly, the wider travel and leisure industry takes a further hit as the next most popular cost saving area is socialising. Combined the travel and leisure area accounts for 37.7% of target savings. So tour operators, travel agents and the hotel, restaurant and pub trade should be keeping an eye on the Bank of England’s interest rate agenda.
After 7 years of recession, low economic growth and fairly static incomes it is obvious that family budgets are highly sensitive to changes in their outgoings. A small rise in mortgage costs, rather than being absorbed by family reserves, is likely to lead to outright spending cuts elsewhere.
The reader survey has been sitting on the website this week alongside an article about the implications of likely interest rate rises in the US and UK.
At the time of writing the reader survey had almost 2,600 responses. So in terms of sample size it is fairly robust.
My version of the results uses abbreviated versions of the exact question asked. Subscriptions refers largely to satellite TV.
Savings appears in two guises. The first as “Saving less money” and the second as “Slash existing savings”.
Obviously we have to consider the nature of the sample. This is after all the online newspaper likely to have amongst the highest average incomes. On the one hand they may a high exposure to interest sensitive mortgages but on the other they may also have reserves of wealth that may well tide them over.
Secondly the respondents are likely to be more male. Who actually makes the decision about family cutbacks may well not be the male of the household.
A potential and obvious flaw in the survey may be the questions themselves. The descriptors Reduce, Cut back, Slash and Cancel are placed in front of each of the expenditure areas. “Cut back” does not imply the same drastic action as “slash”. So the way the questions are framed may have influenced the responses.
Lastly for me, are more obvious response is missing. If a mortgage is likely to be the most interest sensitive item of household expenditure, then why not include “Sell home” or “Downsize home” as options.
In order for households to insulate themselves from a rise in family expenditure is to ensure they are maximising the value of each pound they spend. One way of doing that would be to invest in discount cards such as Taste Card, which focuses on restaurants and targets the upper income scale, and Kids Pass, which focuses on savings for families and a range of kids day out activities.
According to the latest financial market thinking, and the pronouncements of the Bank of England Governor Mark Carney, interest rates are likely to start rising in 2016. This suggests that for low cost mortgages the bottom of the market has been called and family budgets will need the benefits of any new savings they can find.