retail environment
Chancellor's spring statement will not ease cost of living crisis
Retail experts studying chancellor Rishi Sunak’s spring budget have concluded that announced policies to ease the financial pressures on hard-pressed families will fall well short of the mark and could even encourage ‘household recessionary behaviours.’
Retail Economics chief executive Richard Lim, said: “The reality is the cost-of-living crisis is far from being averted.
“The Office for Budget Responsibility’s (OBR) own forecasts predict inflation to average 7.4 per cent this year which will see spending power under huge pressure, particularly for the least affluent households who spend a disproportionate amount of their income on non-discretionary items such as food, energy and fuel.”
The OBR said that despite the policy changes unveiled, real household disposable income will fall 2.2 per cent, the largest fall in a single financial year since ONS records began in 1956 to 1957.
“The policy measures announced since October offset a third of the overall fall in living standards that would otherwise have occurred in the coming 12 months,” the OBR said.
This fall in disposable income will also have a knock-on effect on the retail industry.
Lim says: “We’re likely to see recessionary behaviours kick-in for many households who will cut back on the nice-to-haves and prioritise low costs to make their budgets stretch that little bit further. A more cost-conscious consumer will emerge in the coming months, looking to form new relationships with brands who can align to these new priorities.”
KPMG UK head of consumer markets, retail and leisure Linda Ellett says its research shows that eating out, clothing, takeaways and the weekly food shop are the main targets for shoppers to make spending cuts.
“Those fortunate enough to have saved during the pandemic started the year sitting on the bulk of those savings due to uncertainty. But the certainty of rising costs means many will be dipping into those savings to help balance their budget” she says.
Ellett also flags that value for money is the main purchasing driver for consumers in this climate.
“Retailers, who face inflationary pressures themselves, are having to discount where they can in order to keep custom, but this is not sustainable long term.
Businesses that opt to pass those costs on to the consumer need to be mindful of the need to clearly explain price increases in this landscape. Consumers have long memories.”
Next chief executive Lord Wolfson says it was important to understand that the cost-of-living crisis and the inflation we are experiencing is a supply-side crisis.
He says that disruption to global supply chains along with what he termed “chronic labour shortages” in many parts of the UK economy, mean that there are simply not enough goods, energy and skilled workers to maintain living standards at the levels we have become used to.
“We applaud the efforts the Chancellor has made to help out those most in need. But we are disappointed that the wider Government has done little or nothing within its powers to increase the underlying supply of goods, energy and skilled workers.
“It is important to recognise that Government interventions to ‘pay for’ inflationary increases does nothing to increase the underlying supply of goods and services.”
Wolfson says there is much the Government can do to increase supply: “It can reverse the self-defeating barriers it has placed on overseas workers supporting our economy and accelerate, simplify and reform the planning process to increase the supply of desperately needed housing.
“We hope that the Government will use its powers wisely and do all it can to tackle the UK’s many supply side constraints.”
