And it wasn’t just tourist spending. Britons have also gone shopping and dining.
The scenes contradicted predictions—my own included—that consumers would pull out their wallets after a final hurray at Christmas, making for a bleak period for retailers and restaurants. Indeed, on Tuesday, the British Retail Consortium and KPMG said overall UK retail sales rose just 4.2% year on year in January, about half the pace of December.
But January is always a lean month. What if the rest of the year isn’t so bad?
For one thing, inflation, one of the main components of the cost-of-living crisis, may be reaching its peak. European gas prices have fallen more than 20% so far this year thanks to alternative supplies to Russian shipments, energy-saving measures and a warm winter.
While supermarket inflation hit a record 16.7% in January, Tesco Plc chief executive officer Ken Murphy said, according to data provider Kantar, he hoped price increases would start to ease by the middle of the year. A United Nations index for the cost of food and raw materials fell for the 10th consecutive month in January. The meter is down about 18% from a record set last March, when the Russian invasion of Ukraine disrupted crop flows from the main supplier.
It will take some time for this to permeate the weekly shop. But watch out for more special offers from big brand manufacturers like Nestle SA trying to boost sales.
And it’s not just food prices that could stabilize soon. Next Plc estimates that price tags for its clothing and home furnishings will increase by 6% in the fall, following the current 8% price increase for sweaters and sofas in stores. While devaluing the pound will make garments more expensive, this is offset by declining freight rates and factories becoming hungrier for orders. If the pound’s recovery continues since last fall’s low and the retailer is able to secure competitive deals with suppliers, then gains could be even lower around this time next year.
The better outlook is not limited to inflation either. Mortgage rates have already fallen from their peak in November. It looks increasingly likely that the upward trend in interest rates is coming to an end. The Bank of England is expected to raise rates again at its next meeting on March 23, but money markets now believe this is the last step for the year, and only by 25 basis points.
Meanwhile, wages are rising, even as inflation exceeds wages. If wage packages continue to grow – the national living wage is set to rise by almost 10% in April – and inflation moderates, that should ease pressure on household budgets. Add to this strong employment and housing prices that are falling but not collapsing – two factors that significantly influence consumer behavior – and there is good reason to believe that demand should hold.
Of course, we are still facing a recession, although the Bank of England now expects it to be more superficial. Britons – especially the more affluent – lost the tax cuts that landed at them last autumn, although many still have savings. But people having to pay for private hip and knee replacements because of long NHS waiting lists is another invisible drag on spending power.
There is also a risk that the labor market will deteriorate more than expected or that inflation will turn out to be more stubborn. The impact of China’s reopening is the next factor to look at. But if these dangers can be avoided, the doomsday scenario that many investors are considering may not materialize. Indeed, retailer stock prices have risen this year on those hopes.
However, the greater comfort will not find its way to shops and leisure establishments equally.
Travel remains a priority for consumers. Ryanair Holdings Plc recently said bookings held up, driving fares higher. That’s not just another wrinkle in the inflation story; it can also mean funneling extra household money into vacations instead of a new car or a home makeover. When I was shopping in Stratford, I saw very few people browsing sofas in the John Lewis furniture department.
Clothing can also suffer. Fashion has struggled for years as Brits swapped their Covid sweatpants for smart suits and dresses to get back to work and events. Will they settle for those same outfits this year?
Even with these caveats, the consumer environment looks more promising than it did a few weeks ago. It’s still a long way off, but Christmas 2023 might not be such a nightmare after all.
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This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist on consumer goods and retail. Previously, she was a reporter for the Financial Times.
More stories like this are available at bloomberg.com/opinion