Editor's take: The big spending squeeze

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Think your bonus might be less than last year? Wait until it hits your wallet.

Getting a grip on bonus predictions is not dissimilar to taking a firm hand with one of those toys comprised of a balloon-shaped snake filled with water: one moment you've contained it, the next it's leapt from your grasp and is on the floor gathering fluff.

With even line managers uncertain about the size of bonus pools this year, the various surveys issued by headhunters and compensation consultants are more a measure of the snake's whereabouts at a point in the past than its precise location currently. This doesn't mean they're not interesting (for all those who lambast us for publishing them). It does mean they shouldn't be taken as a totally and utterly accurate representation of reality.

By comparison, what can be said with more certainty is that however big bonuses turn out to be this year, they won't have the oomph they once did.

Earlier this month, the Stonehage Affluent London Living Index revealed that the cost of eating out in one of London's 16 poshest restaurants has risen 6% since 2006. Similarly, caviar is up 28%, Patek Philippe watches are up 26%, and a case of Lafite Rothschild champagne will cost you 117% more than 12 months ago.

Admittedly, not everyone will be quaffing vintage champagne and flaunting costly time pieces, but if you want to access the upper echelons of wealthy society, you'll need to do more than put your bonus in a high interest account until the downpour starts. This summer saw the launch of a new book, Robert Frank's Richistan, detailing how multi-millionaires spend their cash. The author unearthed a surprising degree of uniformity: butlers, boats, and copious amounts of foie gras and lobster are mandatory. And with luxury goods inflation rising at an average rate of 6%, bonuses need to increase by at least that to keep up.

Couple this with the fact that the dollar has fallen around 6% against the pound and 11% against the euro since the start of this year, and the spending power of bonuses at US banks looks feebler still.

The good news is that Financial News reported yesterday that bonus pools at the largest US investment banks are up 5.5% on last year. The bad news is that they'll need to rise by at least twice that if the wallets of bankers in the UK and Europe are to be as full as they were in 2006.

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