UK consumers respond to price discounting

Encouraged by very aggressive price discounting on the high street, UK consumers have been prepared to open their wallets selectively over the past couple of months. In January, retail sales volumes (ex. fuel) jumped 1.2%, after a 0.6% increase in the final month of last year. Demand for household goods surged nearly 5% in the latest month, although a similar cumulative decline was recorded over the previous four months. As such, it could reasonably be argued that massive price discounts unleashed some pent-up demand. For instance, household goods prices fell 0.9% in the latest month. Also, overall retail prices barely changed from October-January inclusive.

In sharp contrast to the first half of last year when real incomes were being squeezed mercilessly, that pressure has diminished recently. For those still in work and confident of remaining employed, lower prices on the high street means their incomes stretch further than before. Some retailers reflected recently that sales volumes were actually fairly respectable last month.

That said, let’s not get carried away. Unemployment is still rising, and for the majority of households the pressure on finances is still immense. Income growth in nominal terms for most is virtually non-existent; as such, only falling prices would deliver any respite to the general worsening of the cost of living. More and more retailers are going into administration, especially in those areas where there is a reliance on public money. Retailers generally remain extremely circumspect.

At the very least however, it appears that the economy will not dip back into recession in the current quarter, following the decline in GDP in Q4.