While everyone has been focusing on the credit crunch, the real economy is taking a kicking. It’s hard to see how anyone ever believed that such a dramatic downturn in the financial markets could fail to have an impact on the high street, but plenty did.

It’s becoming very plain that they were wrong. The most obvious credit crunch casualty so far has been the housing market – more on which below. But now the British Retail Consortium has revealed that like-for-like high street sales fell 1.6% year-on-year in March. And The Telegraph reports that accountant BDO Stoy Hayward reckons the figure was more like 2.9%.

And yet, prices are rising…

No more easy credit to accommodate the rising prices

Consumers are caught between a rock and a hard place. The price of everything they need is rising. The Office for National Statistics reported that wholesale food prices rose 8.5% in the past year. Data from MySupermarket.co.uk suggests that rising food prices have added nearly £600 to the average family’s food bill in the past year.

Fuel costs aren’t helping either. The days of £1 a litre petrol seem far behind us – it’s more like £1.10 now.

But what’s new? Prices have been rising for a long time – maybe not at current rates, but certainly, the experience of living in Britain for several years now has been one of rising domestic costs, ‘offset’ by falling import prices. So what’s changed? You guessed it, the credit crunch.

Rising prices didn’t matter while there was plenty of easy credit to pay for them. But the credit lines have been shut down, and there’s no more money left in the pot.

Hence the fall in high street sales. We’ve already seen DSGi (formerly known as Dixons) issue its second profit warning of the year as consumers pull back on buying unnecessary electronic gadgets. Philips yesterday warned that falling sales of flatscreen TVs had hammered its profits for the first quarter, while the end of the construction boom meant lighting sales had taken a dive, particularly in Spain.

Surveyors: this is worse than the 90s crash

And – as mentioned above - there’s been yet more bad news for the housing market. The Royal Institution of Chartered Surveyors has just reported that almost 80% of surveyors saw house prices fall in March. That’s the worst reading since such records began, 30 years ago. Surveyors are also more pessimistic than ever before, with 73% expecting prices to fall over the next three months.

Yes, you read that right – surveyors now believe that the state of the housing market is worse than at any time throughout the 90s crash. Yet most commentators are still claiming that it won’t be as bad this time around. The professionals clearly disagree with them.

Things look grim. And the credit crunch will only get worse – we look at the various other nasties piled up on banks’ balance sheets waiting to wreak havoc, in the latest issue of MoneyWeek, out on Friday (if you’re not already a subscriber, you can get your first three issues free by clicking here (http://www.moneyweek.com/file/194/subscribe-from-not-logged-in.html).

But what does this misery mean for investors? You might be tempted to stick all your money under the mattress, but the truth is there are still plenty of interesting investment opportunities out there. Sure, you should be avoiding any consumer-facing stocks – and by that I mean banks, airlines, travel companies, leisure companies, retailers – anyone whose business relies on selling discretionary items to consumers. The UK recession will be much worse than most people yet expect (it’s still somewhat controversial to even say that there will be a recession), which means that stocks aren’t yet pricing it in sufficiently.

Source: http://www.moneyweek.com/file/45379/the-outlook-for-house-prices-is-the-worst-in-30-years.html