With summer fast approaching mixed messages about the state of the consumer economy are emerging. Whilst the media seem obsessed with painting a totally negative picture of collapsing consumer demand – bad news always makes for a better headline than good – in the real world things are not so clear cut.
Yes, consumer disposable income is under pressure as the impact of cuts in government spending and higher taxes start to be felt. Yes, wages are currently increasing below inflation, and yes, consumer confidence is weak.
However, the extent of the bad news should not be over exaggerated. Inflation is largely being driven by temporary factors. Barring any unexpected shocks, these should ease during the second half of the year allowing interest rates to remain low. Unemployment also remains reasonably low for this point in the economic cycle and has not risen anywhere near the levels forecast.
If you look at the actual trading figures from consumer facing operators these have on the whole been pretty good. Even in some structurally challenged sectors, such as wet-led pubs, operators have been sounding more upbeat. In other areas, such as food-led pubs, branded casual dining and online retail, operators appear to be thriving.
Whilst there is probably some positive bias inflating these figures – private operators are unlikely to publicly disclose disappointing results – consumers are still very much out there, albeit on a reduced budget.
Overall, the consumer economy has successfully survived the recession without incurring the substantial damage that many had predicted at the outset. It remains intrinsically strong and I believe it will remain Britain’s main economic driver for some time to come.
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