I’ve said here before that the Bank of England’s Monetary Policy Committee would be nuts to raise interest rates at the moment. The last week hasn’t done anything to change my mind. We already knew that real disposable incomes were falling and that wage rises were practically non-existent, something confirmed by Wednesday’s numbers showing that earnings are growing at an average rate of a mere 2.2%.
But on Monday we found that retail sales in Britain fell by 2% last month. That’s the biggest fall in 16 years. Then on Tuesday we found that there has been a small fall in the rate at which prices in Britain are rising. In February, UK Consumer Price Index inflation was 4.4% and Retail Price Index inflation 5.5%. In March they were 4% and 5.3%.
It seems that, as consumers have been cutting their spending, retailers, or the supermarkets at least, have been doing what the textbooks said they would: cutting prices, or at least raising them less than they were. Some 40% of supermarket sales are now either discounted or part of a special offer, while the prices of various other things that come under ‘want’ rather than ‘need’ in the average family budget are down too, such as flights and toys.
The FT doesn’t seem convinced this trend – reluctant shoppers forcing price rises down – will continue. “Unless Britons suddenly start saving more, shoppers are likely to return after a pre-Easter lull.” I’m not so sure. One of the good things about SuperScrimpers, the show I am doing with Channel 4 at the moment, is that I get to spend days talking to randomly chosen people on the street about their personal finances. And one thing comes across very, very clearly. If people are in debt, they are working as hard as they can to get out of debt. If they can save, they are saving. And they are all cutting their spending.
In many days of filming I haven’t met a single person who feels financially confident. I admit that we haven’t exactly been interviewing in Mayfair, but we have been asking a representative lot of working people in the centre of pretty affluent cities. And they aren’t planning on getting their credit cards out again. Ever. A report from Friend’s Life a few weeks ago claimed that “the recent recession has radically altered attitudes towards debt for a generation”. That might be slightly over egging things – say a decade – but I agree with the point: I see attitudes changing too.
The rate of inflation in Britain will probably rise again – note the pound fell sharply after the data was released on Tuesday. But when it does it is unlikely to be because of the return of rampant demand to our shopping malls.