Jeff Randall, in an article tinged with puritan masochism, accuses the BRC of devising a form of Chinese water torture for the Monetary Policy Committee. According to Jeff, UK consumers have been on an extended spending binge way beyond their means and a long period of austerity and repentance is now overdue.
Back in the swinging Sixties, I recall that a Labour minister (a Welsh nonconformist, as it happens) described us as “an idle and thriftless nation”. Plus ça change…
Evan Davis, the BBC economics correspondent, was less censorious. Apart from saying some unexpectedly nice things on his blog spot about yours truly, he argued that, while I was probably right to go on calling for lower rates, they might do little – if anything – to help retailers survive what looks very much like a hard year ahead.
He pointed out that the UK savings ratio, at 3 per cent, is half of its long-term trend rate and needs to be rebuilt. In fact, it’s already starting to recover.
When people are worried about the future – as many are presently – they tend to save more. To encourage saving, we obviously don’t need lower rates. He also argues that, if house prices fall, most mortgage holders aren’t going to rush out and spend more, even if rates go the same way. No sermonising – just plain common sense.
Evan’s crunch point, however, is that lower interest rates will drive down Sterling and stimulate exports, which would, of course, be good for the economy as a whole. But imports will be more expensive, which will increase retailers’ supply costs and squeeze margins.
With margins under yet more pressure and more inflation in the pipeline from energy costs and the national minimum wage, how will retailers continue to cut prices and offer consumers the sort of price-led incentives they have all come to expect?
I suspect they’ll do what many of them are rather good at doing: intensify the drive for scale economies (more consolidation), squeeze their supply chain costs (more howls of pain from suppliers) and keep pay inflation and staff recruitment to a necessary minimum. The big players will – in general – survive in reasonable shape, but many of the smaller ones won’t.
A couple of judicious rate cuts in the next few months could ease the pressure on consumers and retailers without adding too much to our import bill. But, as Wellington might have said, it will be “a damn’d close-run thing”.
This is my last column as director-general of the BRC. I’ve been contributing to Retail Week every six weeks for the past 10 years and my thanks are due to successive editors for giving me the opportunity. Good luck to all of you in this great industry.
Kevin Hawkins, outgoing director-general, BRC