Partner & Managing Director, London
Black Friday gave UK retailers a well-needed shot in the arm. Frantic discounting successfully lifted sales in November, which comes as welcome news in a challenging environment of plummeting real wages, depleted consumer confidence, rising household debt, and fierce competition.
Although retailers will be pleased to see the return of positive volume growth following a flat October, rising volumes of 1.5% in November still indicate relatively weak performance. Reported value growth was 4.5% in November, with the differential above volume growth reflecting inflation (figure 1).
Initial reports on Christmas trading from retail bellwethers like Next and Debenhams appear to be mixed. Debenhams reported a drop in like-for-like sales over the period, but Next beat expectations and posted a 1.5% increase. Regardless of how 2017 ended, life for UK retailers is unlikely to get any easier this year. Ipsos Retail Think Tank is warning retailers of a "fight to survive" in 2018 as companies head into a perfect storm of operating headwinds and lingering Brexit uncertainty.
The unemployment rate remained at 4.3% in the three months leading to October, the lowest level since 1975. Although record-low unemployment may be good news for retailers, the ONS also reported that the improvements seen in the UK labour market since 2012 were showing signs of petering out, after employment levels slipped 0.2% to 75.1%.
Earnings growth lagged behind inflation for the eighth month in a row. Households were feeling the pain of price increases, as inflation hit a six-year high of 3.1% in November. Against the backdrop of falling real earnings, many consumers were left with the choice of cutting their spending, dipping into savings, or accumulating more debt in the run-up to Christmas.
The latest statistics from the Bank of England indicate that unsecured consumer debt rose to £205.8 billion in November, which reflects rapid growth of 7.0% compared with the same month last year. Since 2014, levels of consumer debt have risen rapidly and now appear to be reaching unsustainable levels.
National Debtline expects that 7.9 million people will fall behind with repayments in January following heavy Christmas spending. Analysis from the Labour Party also predicts that the average level of household debt in the UK is on course to reach £15,000 by next year. With real wages now in decline, retailers could be left exposed to any future cuts in spending if households try to shore up their finances before their debt burdens spiral out of control.
The long-term decline in UK footfall showed no sign of abating in November, as data from ShopperTrak indicates a 2.3% decline compared with the same month in the prior year. Although mild temperatures at the start of the month may have helped bring consumers on to the high streets, the subsequent cold snap likely prompted many to stay at home.
The West Midlands and Eastern regions, as well as London, have seen particularly sharp declines in footfall over the last 12 months. The long-term trend across all regions is also firmly negative; the absolute decline for the UK as a whole amounted to approximately 13% across the last five years.
The average UK house price was £209,988 in November, which reflects growth of 2.5% when compared with the same month last year. The rate of house-price growth has jumped around somewhat over the last six months, but the long-term trend is clear: the growth rate has dropped from around 5.0% since the time of the June 2016 EU referendum.
The recent decision in the November Budget to remove stamp duty for first-time buyers purchasing property up to certain values may help improve demand. But the opposite is likely true of the Bank of England’s recent decision to increase interest rates from 0.25% to 0.5%, which will push up mortgage costs for many.