Chancellor George Osborne announced the Government is to inject £140bn into the economy to kick-start credit provision. Retail Week takes a look at the likely effects on retailers.
In an economy dogged by rising unemployment, lacklustre house prices and squeezed consumer budgets, the Government has taken a material step to help turn around UK plc and stimulate growth.
In his annual Mansion House speech on Thursday night, Osborne said the Bank of England would provide an emergency stimulus package intended to kick-start mortgage and small business lending.
Rather than further quantitive easing to stimulate the economy, the Bank of England will now offer cheap loans to banks on the basis that they increase lending.
The lending environment has been bleak for retailers for some time and the shift could provide greater refinancing options for smaller retailers.
Few businesses are as exposed to depleted consumer confidence as much as retail due to a large reliance on discretionary spending.
So what effect will the move have on retail? Pragma Consulting chief executive Patrick Woodall says well set up, rather than beleaguered, retailers are most likely to benefit.
“Banks are being very selective in their lending. They have reverted to the lending criteria of the early 1990s, which probably should have continued in the 2000s with hindsight. It’s not going to help retailers that are in bad shape but it may help those looking to grow and expand if the banks are a little freer,” says Woodall.
But hopes that the stimulus may fuel an upturn in consumer confidence are likely to be misplaced. Woodall argues that confidence has been “flat on its back” for the last 18 months and that, even if GDP growth returns, the days of an obvious related rise in spending will never return because of shattered consumer confidence.
However, some businesses will continue to benefit from the cold economic climate. The continuing increase in market share for discounters Aldi, Lidl and Iceland and, of the big four, Asda, shows there are opportunities to be had as consumers continue to feel the pinch.
But there are less obvious winners too, because consumers do not see value as only being about price. “What the climate has shown is that there are real winners and real losers,” says Woodall. “In the past people have been attracted to the value sector in difficult times but clearly there are value retailers stuggling. What we are seeing is that luxury retailers like LK Bennett or aspirational ones like The White Company are performing well as people are planning every pound and retailers will have to work hard for their spend,” Woodall says.
Ultimately it will take a combination of factors to boost conditions for retailers. The Government has many options that would help retailers – from rent rules to fuel duty – and, from a sector point of view, the latest financial package will only be one first step along a long road to improved trading conditions.