Managing Director, London
As the new year rolled in and glasses of bubbles were raised across the country, many UK retailers will have found little cause for celebration. The stagnant sales and rising costs that have plagued the UK retail sector show no signs of abating.
During January sales grew 4.3% in value terms on the previous year. Meanwhile, volume growth of 1.5% fell short of the recovery City analysts were expecting due to a poor December. This represents a slowdown to year-on-year growth when compared with an increase of 2.4% in January 2017. Inflation remained at 3%, the same level as in December, and continues to drive much of the value growth witnessed in the sector.
People are spending less on food and more on sportwear, according to the latest figures released by the Office of National Statistics (ONS). The result is not surprising given the typical drive for austerity following festive period indulgence. However, the 0.9% decline in the quantity of food bought marks the sixth consecutive month of falling food sales. At the same time, ONS statistics show that food store prices have increased for 13 months in a row, presenting a looming concern for low-income households.
Their belts now firmly tightened over a post-Christmas paunch, consumers are systematically reducing their spending on non-discretionary items. At the same time, consumers are prioritizing experiential spending. Growth in non-food items in the first month of the year was primarily driven by outlays on gym-wear, sports equipment and children’s toys.
Whilst consumers are pounding the pavements in a new pair of trainers under the high-tech tutelage of a fitness tracker, the UK high street remains relatively empty. Footfall decline was seen in all regions this month, with the hardest hit areas being the East, South East and Northern Ireland.
The tough trading environment is taking its toll on UK retailers and the casualty list is growing. High-street heavyweights, Debenhams and House of Fraser, are considering substantial store rationalisations. New Look’s financial difficulties continue to brew following the launch of a CVA. The uptick in toy sales has done little to ease the woes of loss-making Toys "R" Us, which entered administration earlier this month. Furniture retailers Warren Evans, MultiYork and Feather & Black have also collapsed.
As economic uncertainty continues and the outlook for growth remains bleak, the question at the forefront of everyone’s mind is, who will be next?
Unemployment in the three months to December rose from 4.3% to 4.4%, the fastest rise in the number of people out of work in five years. Joblessness has been at record lows in the last year, with levels of employment not seen since the 1970s. The sharp rise brings the total number of people without jobs in the UK to 1.47 million (a 46,000 increase on the previous three months).
The decline in employment comes as wage increases continue to lag behind inflation. January 2018 marks the tenth month in a row that real wages have fallen. Wage increases that have been seen over the last year have for a large part gone to managerial and professional workers, while those on lower incomes have relied on increases in the national living wage to boost their living standards.
Figures from the Bank of England reveal annual growth in unsecured consumer lending fell to 9.3% in January from December’s 9.5%, despite the biggest monthly increase in net credit card lending since January 2005. British families are cutting back on borrowing for the first time since mid-2013. Personal loans and overdraft usage fell by 4.6% year-on-year while credit card borrowing rose by 4.8% - the slowest increase since June 2015.
Borrowers are becoming more proactive at paying off their debt. Credit card repayments averaged £9.8bn per month over the last year, up from £9.5bn over the previous 12 months and £9.2bn in 2015. A combination of factors could be driving borrowers’ renewed vigour for debt reduction, including: uncertainties over the economic outlook in the run-up to Brexit, the impact of the interest rate hike introduced by the Bank of England in November last year, and concern over personal finances, sharpened by the prospect of more rate rises to come.
With a decrease in spending on credit and with household savings rates reaching new lows, consumers will be less able to dip into reserves to support purchasing levels. It may be expected that consumer spending will move more in line with earnings as a result.
Data from Ipsos Retail Performance identified that the effects of heavy discounting on Black Friday extended through early January, shifting sales away from the traditionally solid trading period and resulting in footfall declines across the nation. The areas worst hit include Northern Ireland, the East and South East where footfall fell more than 6% year-on-year.
Britain’s housing market perked up at the start of 2018 with the sharpest increase in the number of mortgages approved for house purchases in nearly three years, according to figures released by the Bank of England. The figures showed the number of mortgages approved for house purchase rose to 67,478 in January from a one-year low of 61,692 in December, the sharpest monthly rise since April 2015 and far above economists’ forecast. The increase comes after Philip Hammond cut a tax on property purchases for first time buyers in November to support young people in entering the housing market (outside of London).
House prices recorded their first monthly fall in six months, pushing the annual growth rate to a six-month low of 2.2 percent.