Growth in the UK for the final quarter of 2010 was originally at -0.5%. However, the latest data has revised that figure to -0.6% and not all of this was down to the snow. Analysts say that the snow effect is still believed to explain the 0.5% contraction, but the economy therefore declined by 0.1% because of other reasons and retailers have seen the effects. Primark has reported a ‘noticeable’ slowdown in demand since the beginning of 2011. With increasing VAT and rising cotton prices, clothing retailers are feeling the squeeze. The same is true of UK consumers. With an increase in VAT and high inflation, consumers’ purchasing power has simply fallen and so they are spending less. Despite this slowdown, Primark’s revenues are still significantly ahead of the same time last year.
The parent company, Associated British Foods (ABF) commented on the disappointing trading of 2011 so far, saying:
“Since the New Year, the performance in all our operations in Continental Europe has been very encouraging but there has been a noticeable slowing down of UK consumer demand.”
However, despite disappointing figures for Primark, UK retail sales did pick up in January, although analysts are warning against taking this information as a sign of recovery. As Hetal Mehta from Daiwa said:
“While we expected there to be some clawback from December’s dismal, snow-hit retail sales, today’s jump is a welcome surprise. But is still far too early to conclude that consumers are weathering the storm … and with the past week’s unemployment figures highlighting the fragility of the labour market, the housing market continuing to weaken and real earnings being hit hard by high inflation, it seems inconceivable that consumer spending will act as the driving force of the economy over the near term.”
There are many opinions about what to expect from the economy in 2011, but for any concrete information, we really have to wait for at least another month. Perhaps by Easter, we’ll have a better idea about the state of the UK. For now, there are a few articles considering the retail sector.
Primark owner warns of slowing sales in UK Guardian, Graeme Wearden (28/2/11)
Primark warns of ‘noticeable’ slowdown in UK demand BBC News (28/2/11)
Growth in UK retail sales slows sharply Wall Street Journal, Alex Brittain and Art Patnaude (24/2/11)
UK retail sales rebound: reaction Telegraph (28/2/11)
UK GDP figure revised down further BBC News (25/2/11)
Questions
- Why has higher VAT and cotton prices impacted retailers such as Primark?
- Why was Primark less affected by declining sales in the run up to Christmas?
- What do we mean by purchasing power?
- Why is it hard to draw any conclusions about the performance of the UK at the moment?
- What does a slowing down of retail sales mean for the UK’s recovery? Will it influence the Chancellor’s Budget?