Sales on the High Street are growing at their fastest for two years with consumers caught up in a ‘spend now, pay later’ boom. At the same time, sales via the Internet and mail order are 15.7 per cent up on a year ago, the highest annual growth rate recorded. Warmer weather and a case of football fever are thought to have played a large part in the spending spree. It is being financed by a massive increase in personal debt, expected to top £1trillion this summer.
The figures will alarm the Bank of England, which has raised interest rates by a full 1 per cent in the last seven months to head off this type of over-heating of the economy. The City believes further substantial interest rates are likely. The spending frenzy appears to be driven by a booming housing market, which has made those who own a property feel much more-wealthy. At the same time, relatively low unemployment and interest rates have -seen families and workers take the gamble of running up huge credit card debts, overdrafts and bank loans.
Figures from the Office of National Statistics show sales of clothing and footwear took off as May’s warm weather saw women, in particular, spend a small fortune. Garden centres and DIY stores reported strong sales of garden furniture and plants, again driven by warmer weather and the popularity of TV makeover shows. Shoppers were also keen to splurge on barbecue equipment and garden furniture as they prepared to entertain friends during the Euro 2004 football coverage. Sports shops reported increased clothing sales as more Britons try outdoor pursuits – from running to canoeing, rock climbing to cycling. Sales of replica England shirts and merchandise will also have driven up sales.
The increase in shopping on the Web is particularly startling. Many consumers now buy expensive equipment such as American-style refrigerators and plasma screen televisions via the Internet. The total value of retail sales in May was a staggering £18.5billion, according to the ONS figures. That equates to average weekly sales of £4.6billion, 7.1 per cent or around £300mlllion higher than the same month in 2003.
The Bank of England’s Monetary Policy Committee has admitted alarm about the over-heating of the economy, demonstrated by rising house prices, high street sales and a surge in manufacturing orders and output. It fears this will bring an increase in store prices, so driving up inflation which will, in turn, see workers demanding big pay rises. It had hoped interest rate rises in recent months would have curtailed spending, giving stores less of an opportunity to push up prices. Given that a succession of four quarter point rises in the base rate, taking it up to 4.5 per cent, appear to have had little effect, it appears more substantial rate rises are likely. Howard Archer, an economist at Global Insight, said: ‘The surge in retail sales in May, despite an interest rate hike early in the month, highlights how unperturbed consumers were by the Bank of England’s gradualist approach to raising interest rates.
(Daily Mail 18th June 2004)