Retailers have stocked up on festive goodies, but will anyone buy them?

The fallout from the mini-budget is adding to high street jitters in the run-up to what is traditionally the busiest time of the year

Will it be a merry Christmas? It will certainly be one of the most uncertain ever for businesses. Inflation, the war in Ukraine and an erratic new cabinet are only adding to the jitters around Covid. And who knows whether England and Wales will bring joy or pain to football fans during the World Cup in Qatar.

Retailers were already feeling nervous before Liz Truss and Kwasi Kwarteng launched their mini-budget for growth – and sent the pound into freefall and mortgage rates soaring.

The industry may have bought its stock for the peak trading season, so the fall in the value of the pound will not affect prices or profits until next year. The main short-term concern before Christmas, when most consumer industries make the majority of their profits, will be consumer sentiment and spending power.

A pause in house sales, as uncertainty about interest rates puts the freeze on deals and clips buyers’ wings, is likely to mean a further slowdown for related businesses, from estate agents and builders to furnishing stores and DIY retailers, who are already suffering after the boom in home improvement during the lockdowns.

Those in rented accommodation may also fear rising costs as landlords increase their demands to cover more expensive borrowing. Talk of potential benefits cuts, and the impact of the cuts already implemented, mean even more pressure for those on a tight budget. They will be watching every penny, fuelling a further switch to discounters such as Aldi and Lidl and putting more pressure on traditional supermarkets to keep prices down, so hastening the decline of ailing chains Morrisons and Waitrose.

Over the summer, consumers have chosen to prioritise nights out and dressing for the occasion and trimmed spending on other non-essentials such as subscriptions and homewares. Spending on expensive items such as furniture, which saw huge growth during the lockdowns, is also down. Shoppers are meanwhile making their weekly food budget stretch by skipping the little extras and trading down to supermarket own labels or the discount chains.

Those first signs of changing behaviour come as the spare cash left after paying for essentials plummeted 10% in August for the average family, with the decline deepening to 16.5% among the least affluent, according to consultancy Retail Economics.

Outstanding net credit card debt has risen on average by 0.9% per month since the start of the year – well above the 0.1% growth in the decade leading up to the pandemic. Purse strings are only likely to tighten further over the autumn as the heating is switched on and long-feared energy bills hit doormats. Consumers will be forced to make even tougher choices.

Clothing, homewares, nights out and trips away must all be on the list of budget cuts for many households. Supermarkets may start to benefit as meals out are swapped for “fakeaways” such as the family dine-in offer from Marks & Spencer, which feeds four people for £15.

Non-essential retailers may have had a decent summer and a shift to lower rent deals during the pandemic, but their reserves have been hit by lockdowns, while the government has yet to deal with the problem of high and out-of-step business rates.

The Truss-Kwarteng plan was supposed to boost household spending power by offering help with energy bills and cutting taxes. Their efforts were intended to increase disposable cash because of the energy price cap support, and some retailers have expressed hope that consumers will be reassured.

As Simon Wolfson, the boss of Next, pointed out last week, households have more savings than they did pre-pandemic and the rate of unemployment is low and almost matched by vacancies. However, soaring mortgage rates, the collapse in the value of the pound and volatility in the stock market are likely to spread a general feeling of economic malaise and fear about the future, which could lead to caution over festive spending.

Richard Lim, chief executive of Retail Economics, sums it up: “The cost of living crisis and shock to housing affordability will make life extremely difficult to swathes of households as we head into 2023. Peak trading will be incredibly tough and is likely to push many in the industry to breaking point.”


Sarah Butler

The GuardianTramp

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