It is getting nasty out there. After a brief flirtation with recovery, it is now more clear than ever that the next few years will be something of a slog for the UK.
National Statistics numbers just out show that real (inflation-adjusted) expenditure by families in the UK fell 0.7% in the first four months of this year. Spending on clothing and footwear were among the hardest-hit areas – down 7.7% year on year.
This should hardly come as much of a surprise, given the financial crisis and the credit drought it has left us with. But it does explain the carnage we are seeing on the UK’s high streets. Administrators have been called in everywhere from Jane Norman and Habitat to HomeForm (owners of Moben Kitchens and Dolphin Bathrooms), and the rest of the retail world is desperately trying to avoid the same fate: London’s Evening Standard reports that the summer sales are underway even earlier than usual while several big name retailers are working to protect themselves by closing stores before they get closed. Thorntons is to shut at least 120 shops in the next three years and lose 750 staff in the process.
“There is something a bit unpleasant going on out there,” the Standard quotes leisure analyst Mark Brumby of Langton Capital as saying. Everyone is discounting to get sales. But non-stop discounting at a time when costs are rising fast isn’t sustainable. Instead, it “could easily lead to more collapses.”
For years, retailers have worked in an environment of rising spending and rising sales, one in which consumers have been egged on by falling prices. Now, with real wages falling and fear gripping the wallets of the nation, that environment has gone. Today they are competing for fewer pounds in the pockets of fewer people, and if they are weak, odds are they will go under relatively quickly.
Those in any doubt that Britons aren’t in a buying mood might note a few numbers from GFC Economics. It seems that in real terms (i.e. adjusted by the consumption deflator), employee compensation fell 4.0% y/y in in the first quarter of 2011. That compares with an average fall of 1.2% y/y in 2010 and it surpasses the worst numbers of the 1980s. That’s not good.
The hope of course is that the UK economy somehow manages to rebalance away from consumption and public sector largesse back towards more in the way of sustainable manufacturing and exporting. But while we have made a start on this (manufacturing and exports have risen and private sector employment is doing fine) it isn’t going to be a short job. You can see all the weak economic data out today alone here.
All this is, I think, I hope, now universally recognised. What isn’t is a solution of any kind. We hear endless gripes about the state of the economy but no useful suggestions as to how we might help it grow a little, growth being the best possible way for us to escape from our current fix.
Take this piece by Chuka Umunna. In it he sums up very well the problems facing small and medium size companies (SMEs) but he doesn’t actually suggest any concrete measures that either his party or the other could suggest to make things better. He wants less red tape and more support for the sector but we all want that. And he doesn’t tell us how we get there.
There is always the chance that we now won’t grow again for a few hundred years (as I suggest in Is there a limit to economic growth). And it is also true that you can’t force growth, just provide a good environment for companies to operate in and hope for the best.
But still the dearth in suggestions is odd. It would seem to me for starters that if we really want to increase lending to SMEs we should find a way to postpone the rise in capital requirements for banks. This would mean they have more capital to lend to SMEs. That they don’t have the capital to do so is one of the main reasons they are hanging back from lending at the moment. And part of the reason why the rates at which they do lend are so high.
It wouldn’t be popular with another banking crisis looming but it might help a little. Anyone else got any ideas? They have to be specific and immediately doable.