Retail Sales in The UK Makes Strong Recovery Amidst Sharp Rise in Public Debt Levels

Summary

• Average British consumer spent more in May after the relaxation in the lockdown.
• Experts are cautious of calling the sales volume figure a V-shaped recovery, as there are several other economic indicators that suggest otherwise.
• Unprecedented public debt levels amidst very high unemployment rates, are indicators that this current momentum lacks steam

The average British consumer is among the very relieved lot as the lockdown got relaxed in the first week of May if the retail sales data coming in since then is to be believed. The outbreak of the pandemic, the lockdown, and the continuing scare of contacting the infection has been painful for everyone. During the lockdown, the government had allowed only the essentials to be delivered through doorstep deliveries, which meant that most other merchandise requirements were postponed by the masses. When the government finally decided to open the lockdown, this pent up demand for non-essentials is coming to the fore and sales in the sector has risen sharply compared to the sales figures for the month of April. It is worth noting here that this increase in demand is still majorly being catered by the online retailing industry in most parts as supermarkets and shop floor are off to a slow start because of the social distancing measures still remaining in place. In the meantime, the panic among people has not abated much as the country is still fully in the grip of the pandemic. Till now the pandemic has infected more than 300,000 people in the country out of which more than 42,000 have already lost their lives.

It has been reported that there was 12 per cent surge in sales volume in the month of May, in comparison to the 18 per cent plunge in the previous month, which was the first full month of lockdown. While the sales data for the month of May, may seem encouraging compared to the one of April but compared to the figures from May last year, it has actually shrunk. The British retail consortium had reported last week that this year sales in the sector for the month of May was actually less by about 5.9 per cent compared to last year and that the social distancing measures could prove to be a big deterrent in the industry achieving back its pre-March 2020 sales levels. The momentum of this recovery thus will depend largely on how the retailers are able to comply with the social distancing rules and bring in more and more people to store and on supermarket floors and also on the increase or the decrease in the infection rate of the virus in the country, which will ultimately dictate how confident people will feel to come out of their homes. The traditional retail industry depends to a large extent on store footfalls which is a more important yardstick to gauge the performance of the sector than sales.

Among other important indicators that are used to forecast the performance of the retail sector are the consumer confidence levels in the country and the government spending levels. While the consumer spending levels gauge the sentiments of an average consumer on how he feels his job and livelihood situation is going to be in forthcoming months, the public expenditure levels indicate on how much purchasing power the government is going to put into the hands of people which will translate into a corresponding growth level for the retail industry. The consumer confidence levels in the country are currently depressing due to the pandemic. The uncertainty regarding how long it is going to take for the pandemic to be brought under control before people can get back to their usual lives is impacting their anxiety levels and conserving more rather than spending. The public spending, on the other hand, is at an all-time high thanks to the numerous stimulus measures, which along with a rock bottom low-interest-rate levels should provide a lot of steam to the spending momentum in the country. It would be interesting to see how these opposing forces work on the psyche of the average British consumer in the next few months to come.

The rising public debt levels, on the other hand, are becoming the cause of major concern. The increasing amount of stimulus spending and tax cuts being tendered by the government to soften the economic impact of the pandemic, likely to cost the government around £132.5 billion and the current state of borrowings could increase public debt to up to £300 billion by the end of this fiscal. Experts, however, feel that given the enormity of the pandemic threat, the public debt levels and the increased public levels are justified. The government has also reiterated its position that it will do everything to protect jobs and livelihoods in the country and will continue to extend its stimulus measures till businesses in the country are back on their feet and achieve sustainability levels.

There is one major economic factor; however, that could prove to be a major hindrance in the recovery of the retail sector and the economy as a whole. The rapid rate at which the people in the country are becoming unemployed, which is alarming, and if not checked, will make the path to recovery very challenging. The retail sector is one of the largest employers of skilled and semi-skilled people in the country. For the seven weeks when the complete lockdown was in place, it was able to place a large portion of these people under the benefit of the scheme. The government has promised that it will continue to support the scheme, but more people joining back to work early will reduce the unemployment threat levels in the country. The next few months thus are going to be crucial for the recovery of the retail industry as it tries hard to bring back more customers to its shop floors and more and more of its employees out of furlough.

Though it will take a long time for the economy to get back to normal, the most promising event that could signal a turnaround is going to be the arrival of a vaccine or cure for the virus. There are several research groups that are currently persistently working in the country and across the world, and talks are that in the most optimistic scenario, we should see a successful candidate by September of this year.