Raw capitalism on the High Street

Economists and financial advisers have been warning British consumers for years that they need to cut back on their spending. We have been told many times that we have accumulated dangerous levels of personal debt, that we need to tighten our belts if we are to avoid catastrophe. But now we have finally acted on this advice, many economists still seem to be forecasting doom.

Economists and financial advisers have been warning British consumers for years that they need to cut back on their spending. We have been told many times that we have accumulated dangerous levels of personal debt, that we need to tighten our belts if we are to avoid catastrophe. But now we have finally acted on this advice, many economists still seem to be forecasting doom.

Part of the dilemma lies in the fact that high street shops rely heavily on the huge sales traditionally made over the Christmas holiday period. Figures released yesterday by the Office for National Statistics (ONS) show that UK retail sales dropped by 1 per cent in December. The British Retail Consortium believes Christmas 2004 was the worst for 10 years. By other measures it was the worst since 1981. And this does have economic implications. In response to these figures, the annual 2004 rate of growth had to be revised down by the ONS. If our economy continues to slow, we will all inevitably feel poorer.

But this is not the whole story. Some stores indeed had a miserable Christmas. Morrisons, Woolworths, House of Fraser and Marks & Spencer posted disappointing sales. But others did surprisingly well. Tesco, Monsoon, Jessops, The Body Shop and HMV all did better than at the same time the previous year. In the past, when retail sales slumped at Christmas, they slumped more evenly across the sector. But this time well-run stores have been rewarded and badly-run outfits have suffered. This is efficient capitalism.

We should bear in mind that households today use only about 40 per cent of their budgets on the traditional high street. The public has more ways to spend than in previous years, when the Christmas retail figures would have been much more significant. An unprecedented number of Christmas gifts were ordered over the internet last year. There is also the world economy to consider. All the projections for 2005 indicate a global slowdown in growth. This will inevitably affect Britain. In this context it is desirable that British consumers tighten their belts slightly - so long as panic does not set in and cause spending to dry up completely.

These figures are by no means catastrophic. British consumers must continue to spend, but not on the scale they have become accustomed to in recent years. And in this context, as these figures demonstrate, it is still possible for the best of Britain's high street businesses to thrive.