Britain’s high streets face another tough year as spending remains weak

Britain’s consumer economy is still awaiting the “latent spending power” built up during the pandemic.

Panmure’s Simon French noted last month that while savings rates have reverted to pre-pandemic levels, the substantial stock of savings accrued during successive lockdowns remained “largely intact”.

That’s the power. There just isn’t much sign of it being released. At least, not yet.

The CBI found retail sales volumes fell over the last month, and at their fastest rate since April last year.

The balance, which included a couple of days of the Christmas period, fell to minus 23 per cent from plus 11 per cent in the December report. This is because more of the 59 chains involved in the survey reported a drop in sales than reported a rise. Quite a few more, in fact.

And the survey pointed to another fall on the way: levels of stock are high, while orders for new products are low.

It is true that some consumers took the opportunity to push the boat out a bit at Christmas. Retailers inevitably serve up a mixed bag with their post-festive updates. Some did quite well, the supermarkets in particular.

“The sector continues to face the twin headwinds of rising costs and squeezed household incomes,” warned CBI principal economist Martin Sartorius.

Always look on the bright side of life, sang Monty Python. Panmure’s Simon French has been trying hard at that; it makes him a relative rarity among economists. As a rule, they’re a rather personable bunch but their gloomy forecasts can sometimes sound like a convention of Joy Division obsessives. It’s “Love Will Tear Us Apart” on high streets right now.

The problem for retailers is that consumer confidence remains at a low ebb. GfK’s monthly gauge of how people feel about their personal finances and the wider economy fell to minus 45 this month, a three-point decline when compared to December.

Until that changes, household cash will remain locked away and the consumer economy will remain in a trough, with demands for cuts to business rates.

Retailers shouldn’t expect much help there; the chancellor will probably look for evidence that Britain is doing okay compared to its main competitors. French is right to say similar problems are happening elsewhere. Other developed nations mightn’t be in as bad of a state as Britain, but they’re not exactly having a great time.

Even gloomy forecasters seem increasingly confident that inflation will fall sharply by the end of the year, if not before, which will surely cheer up the consumer. It might finally unlock all that latent spending power.

In the meantime, retailers will just have to grit it out. There will probably be fewer of them this time next year.