U.K.ECONOMIC FUTURE..........GRIMRoger Bootle of Capital Economics in conversation with James Max.
Briefly 2010 another very very tough year- VAT may have to go up to 20%
Public Spending cuts 10%-20%-Rising Unemployment.
Housing Market very very over-priced.
at 25 minutes in also briefly Sean Roach joins the chat.(sound bit rough)
Roger Bootle is puzzled but he provides a number of plausible reasons why sales in the shops are holding up much better than expected. May I add one more?
The precise tactics being employed by Gordon Brown are to borrow to the hilt - and beyond - for as long as he can so that any benefit accrues to the Labour party while making the task facing any successor government nigh impossible. He reckons he can save quite a number of Labour seats by bribing the country with the proceeds of dodgy debts.
He might be right!
Christina
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TELEGRAPH 23.11.09
The high street is surprisingly defying the gloomsters, but for how long?
Last week's official retail sales figures for October suggested that consumers are continuing to defy the gloomsters.
By Roger Bootle
Sales volumes rose by 0.4pc on the previous month, leaving them 3.4pc higher than a year ago. Whatever happened to the great consumer squeeze?
What with house prices apparently rising and the City doing well again, you could be forgiven for thinking that the recession is just a mirage, or something restricted to bits of the economy beyond our ken – or at least beyond our South Ken. But can the pain really be over so soon?
Before some bright spark writes in to tell me that I am so over-educated and out of touch that I have failed to take account of the fact that Christmas is coming and sales tend to rise (you know who you are!), let me point out that the figures are seasonally adjusted, and accordingly they should be unaffected by the coming and going of Christmas.
Nevertheless, there is a good reason why we should not read too much into the figures. Retail sales only account for about a third of overall consumer spending. They exclude spending on housing costs (ie. rent and utility bills), transport, car sales, spending in bars and pubs, hotels and restaurants, and on financial services, healthcare and education, all of which are included in the overall consumer spending figures.
In fact, these other areas of consumer spending have been very weak. Indeed, in recent quarters, while retail sales have risen, overall real consumer spending has fallen. In Q2, for instance, retail sales rose by 0.8pc on the previous quarter but overall consumer spending fell by 0.6pc.
This did not receive the attention it deserved because the retail sales figures hold a more prominent position in our consciousness. They are published monthly and are preceded by two well-known retail surveys from the CBI and the BRC.
Conversely, the household spending figures are only published quarterly, and well in arrears. So for every published figure on overall consumer spending, there are nine on retail sales.
Nevertheless, why is it that retail sales have been more buoyant than the data for overall consumer spending? There are five possible explanations.
One obvious possibility is that the retail sales figures are simply wrong.
The figures are often revised quite substantially, even years after the event, and there are plenty of retailers who will tell you that conditions are much tougher than the official retail sales figures suggest.
That said, the fact that the aforementioned retail surveys have been even more positive than the official figures suggests that, at most, this can be only a part of the story.
Nor does the rise of internet sales offer an explanation. The official figures are supposed to include online sales. Anyway, to the extent that they miss the full impact, which they probably do, the effect should be to weaken, not strengthen, the official retail sales numbers.
A second explanation could be that consumers are responding to the fall in the price of retail goods by increasing their consumption, while economising on non-retail items whose prices have still been rising.
Consumers may also be responding to the temporary cut in the rate of VAT from 17.5pc to 15pc in December of last year by bringing forward their purchases of clothes and consumer durables.
A third explanation could be that retail sales now respond less to changes in the economy than before. This might be because, for many people, a trip to the shops, whether a high street or out of town shopping centre, is now seen as a staple part of everyday life, an unmissable "leisure experience" (poor souls!).
Conversely, the non-retail sector may have become more cyclical. As we get richer, we tend to spend more of our extra money on services, rather than on goods. This perhaps means that there has been more scope than in previous recessions for consumers to cut back on non-retail spending.
A fourth explanation could be that the consumers with extra disposable income as a result of lower mortgage interest rates are the types that tend to spend more on the high street.
But this seems implausible – the middle classes with large mortgage repayments are those who have gained the most from the fall in interest rates and, as mentioned above, wealthier consumers tend to spend a smaller proportion of their income on the high street that those who are less well-off.
A fifth explanation could be that this recession has been driven by an unprecedented tightening of credit conditions that has disproportionately affected demand for big-ticket items, many of which are usually bought off the high street. But many high value items such as furniture and household appliances are bought on the high street, so this explanation can only go so far.
Whatever the explanation, there is, I fear, further weakness in both retail and non-retail sales still to come. Spending is likely to be hit by the continued deterioration of the labour market as pay growth moderates further and unemployment rises.
Taxes are set to rise next year, imposing a serious squeeze on consumers' disposable incomes. And consumers are likely to remain concerned by their still exceptionally high levels of debt, with the result that, even when the banks are prepared to lend to them, they are reluctant to borrow.
It would be nice to think that somehow the adjustment to the financial madness of the last few years could pass the retail sector by and that our love-affair with shopping could survive relatively unscathed. But I cannot believe that this will happen. Next year is going to be a tough one, and I reckon that for retailers it will be as tough as or even tougher than for the rest of us.
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Roger Bootle is managing director of Capital Economics and economic adviser to Deloitte. His new book, "The Trouble with Markets" has just been published by Nicholas Brealey.
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