Despite being in the middle of the media 'silly season', there are precious few belly laughs to be found in the realm of financial news. Indeed, the headlines have told of falling house prices, commodity shortages and higher-than-expected inflation. To top it off, Bank of England governor Mervyn King is warning that the economic recovery could be 'choppy'.
Consumer confidence is being further hit by reports of price rises for everything from sausage rolls to petrol, and that is before VAT is increased to 20% in January. Moreover, while the latest figures on unemployment show a fall, there are public sector cuts still to come. All of these factors are likely to make consumers think twice before splashing out on that next big-ticket item. No wonder, then, the term 'double-dip recession' is being bandied about so freely.
Financial doubt
PricewaterhouseCoopers says the uneven economic signs will spur consumers to try to spread their spending. As a result, many retailers will launch their Christmas promotions even earlier than usual.
'Consumers are getting a lot of mixed messages about the economy and they are concerned about spending cuts and possible house-price movements,' says Andy Lyon, retail partner at PwC. 'In such conditions, they are unlikely to increase their spending in the run-up to Christmas and retailers will want to plan accordingly.'
Lyon believes, however, that better stock planning by retailers means that there will be less need for the level of discounting that occurred around Christmas in 2008.
Ivan Pollard, partner at planning agency Naked Communications, provides a reassuring voice amid the gloom, warning that the industry must not talk itself into problems that do not exist.With brands including Coca-Cola, Vodafone and Sony in his remit, he says he is yet to see anyone with a case of the jitters.
'The vast majority of brands are still feeling reasonably confident that they can market their way through any downturn,' he adds. 'There's a fine line between optimism and confidence, and at the moment our clients are on the optimistic side - they're not reacting.'
British Gas' recently installed marketing communications director, Will Orr, is equally bullish and reveals that the company has no plans to change its marketing message any time soon. 'We'll keep talking to customers about value and service and help them use less energy, whatever the economic climate,' he says.
What's more, and despite the government's intention to drastically cut COI spend, there is good news for the UK's media owners - two of the country's biggest advertisers, Procter & Gamble and Unilever, have both significantly increased their marketing spend this year.
Unilever, which owns Dove and Ben & Jerry's, reveals that its long-term plan is to keep investing 'heavily' in advertising and promotions to maintain growth, given that it is forecasting 'sluggish' recovery in some markets, including Western Europe.
Increasing marketing spend is likely to be a wider trend for the bigger brands, according to one analyst.
Matt King, research manager for the leisure, travel and technology sectors at Mintel, says the tough economic times represent a good opportunity for the biggest brands with financial clout.
'They can use advertising to consolidate and perhaps even increase their market share against smaller rivals, which may be finding it more difficult to return to high levels of above-the-line spending,' he says.
Orr agrees that if the tough times continue, there could be an upside for those brands that can afford to continue to spend. 'The opportunity is to keep investing in marketing that has a proven ROI,' he says. 'Progressive companies such as British Gas will take the long-term view of marketing's value and keep investing, as long as the money is spent wisely.'
Four factors affecting consumer confidence
Employment figures Unemployment fell by 49,000 people to 2.46m in the three months to June.
Inflation The Bank of England is forecasting that the rate of inflation will remain higher for longer than previously predicted. Meanwhile, shortages in some commodities could push prices up further.
Interest rates These are likely to stay low while inflation remains above the Bank of England target.
House prices A RICS survey reported that prices fell in July for the first time in a year.
