First Person: The good news first
Here is a little game you can play at your next dinner party. Ask your guests what they think happened to retail sales during the first couple of month of the year.
Their considered verdict will undoubtedly be that they slumped, probably by around 5 per cent. You can then stun your friends with the good news: according to figures published this week by the British Retail Consortium, total sales actually rose in February.
True, the increase was just 0.1 per cent over the previous year, but think about this: despite the worst recession since the early 1980s, we are still spending more in the shops. In fact, this is the second good month in a row: in January, thanks to huge discounting, total retail sales rose by 3.2 per cent over the previous year. Some retailers are focusing on various other measures which paint a gloomier picture, but the only statistics that really matter show that we are still spending more, not less, in the shops.
So why, I hear you ask, does it seem as if all retailers are in crisis, with well-known chains shutting down and a growing number of boarded up shop fronts blighting our town centres and shopping malls? The answer is that supermarkets are still doing really well, as are websites. The collapse in interest rates, especially for those with tracker mortgages, is helping retailers. In London, the weak pound is also attracting tourists. But traditional high street players, including many fashion outlets, as well as any businesses connected to the housing market, are suffering very badly indeed.
I am certainly no Pollyanna. There are huge problems in the British economy. Output across the UK is shrinking, with the recession likely to continue until at least the autumn, if not all year, and the recovery next year set to be depressingly weak.
Unemployment will continue to rise for at least another 18 months, triggering yet more home repossessions and misery. Manufacturing is falling off a cliff: February’s 2.6 per cent monthly drop in overall industrial production left it down by a dire 12.8 per cent over the last year. Services, while not doing quite as badly, are also in continuing crisis, with the City still shrinking and shedding thousands of jobs. House prices have at least another 10 per cent to drop, while commercial property is in the doldrums.
All in all, the picture is grim; no wonder a previously cautious Bank of England is now embarking on a radical programme of quantitative easing, under which it will purchase assets to try and boost the money supply and induce banks to lend more.
This is a dangerous strategy, however, as the policy could easily be abused in the run up to the election to flood the economy with liquidity, creating a temporary feel-good factor but making a disastrous return to inflation likely.
But don’t let that spoil your dinner party.
Allister Heath is Editor of City A.M.