THE BLOG

Latest Sales Numbers Confirm That UK Is Very Much a Nation of Shoppers, Rather Than Shopkeepers

18/07/2013 16:59 BST | Updated 17/09/2013 10:12 BST

According to legend, Britain was once referred to as a 'nation of shopkeepers' by Napoleon. However, if the little warlord was still around today that quote may instead have been revised to 'a nation of shopaholics'. Today, some 62% of UK GDP is based around private consumption and so the health and wealth of the retail sector is central to the future of the UK.

This week's sales numbers showed a slight increase in retail sales and did well to improve on the 2.1% increase made in May. Notes and noises from the retail sector have been encouraging of late. Data from the British Retail Consortium has begun to shown an increase in sales volumes, whilst consumer confidence has moved to the highest level since October 2010.

A lot of the recent increase can be attributed to the weather. If the British public can be trusted to do one thing it is to spend money when the sun is shining. I wonder if we had an index for the percentage increase in paddling pool sales just what the past month's figure would be? Retailers are making hay while the sun shines and so they should do. It was only a couple of months ago that the High St was still knee-deep in snow and staring down the barrel of a fair few corporate bankruptcies.

One caveat to the increase in sentiment is that it'll be interesting to see if retail sales in a climate of falling real wages is driven by an uptick in consumer credit demand - i.e. are people loading up the credit cards to afford life now?

Wage data on Wednesday showed that the difference between inflation and pay is still around the 1% mark. People, in real terms, are still getting poorer, albeit it at a slower rate than was the case earlier in the year.

Interest rates on credit cards and overdrafts have unfortunately not fallen in line with the reductions in the Bank of England rate. The average credit card rate still sits at around 17.5% with the penalty on overdrafts around 10%. For those who need reminding, the Bank of England base rate has been at 0.5% for over 4 years now. Borrowing, for all the plans of the monetary authorities is still fairly expensive.

While borrowing rates remain high, the rates paid on savings have crumpled in over the same time period. This is where the issues around inflation and spending come in. Why hold dead cash in an account paying 1% and borrow at 9% from an overdraft? We have seen the savings ratio dwindle in the past year as people have started to use savings to keep their heads above water.

If the recovery is strong enough to allow a gradual resumption of savings then this issue will pass without much effect. If the recovery drags on longer than savings accounts can afford, then the risks to that 62% of UK GDP will only increase over time.

In the meantime, things are getting better. I think I might buy myself an ice cream to celebrate.