Changes to Interest Rates
- Interest rates are set by the government's Central Bank
- Changes to the base rate cause commercial banks to change the lending and saving rates they offer customers
- A change in interest rates will change the level of consumer spending and savings
- If interest rates increase there is a greater incentive to save
- More saving = less consumption
- If interest rates increase, the monthly repayment on any loan or mortgage increases
- Higher loan repayments = less consumption
Changes to Consumer Confidence
- The stronger the economy, the higher consumer confidence
- Consumers feel secure in their jobs and are confident of receiving regular salary payments
- Consumption increases and saving decreases
- In a weakening or recessionary economy, consumer confidence falls
- Consumers feel less secure in their jobs
- Consumption decreases and saving increases
Changes to Wealth
- If consumer wealth increases, then consumption usually increases
- Rising property prices or share prices give consumers confidence to borrow more money
- Increased borrowing = increased consumption