THE UK economy may have contracted slightly less than feared at the end of last year, but that’s where the good news ends. Alongside figures showing the decline in GDP had been shaved from 0.6 per cent to 0.5 per cent – still its sharpest fall since mid-2009 – came alarming news of the first annual drop in disposable income for British households in 30 years.
Underlining the strain on household budgets, holiday firm Thomas Cook blamed “fragile consumer sentiment” for a noticeable slowing in bookings in the UK in recent weeks and the latest industry data on supermarket sales showed shoppers are cutting back on the weekly shop once again.
Stripping out tax and adjusting for inflation, real household disposable income suffered its first decline since 1981, dropping by 0.8 per cent last year, the data showed. Household spending fell by 0.3 per cent over the fourth quarter, its steepest decline since the recession. On top of that, the savings ratio – the percentage of disposable income that is squirrelled away – slipped from 5.5 per cent to 5.4 per cent quarter-on-quarter, suggesting hard-pressed householders are dipping into their savings to meet their bills.
It can only get worse: VAT rises, and higher utility bills, petrol and food prices are already hitting household budgets hard but the full impact of the government’s austerity measures and benefit cuts are still to be felt. For those in work, their impact will be exacerbated by wage rises that are significantly lagging inflation. We might not still be in recession, but it certainly feels like it.
When the downturn first struck in 2008/09, shoppers turned to discount stores in search of bargains, only to return to their usual shopping habits as the recession ended. But now austerity is being seen once again in the weekly shop, with the no-frills discounters outperforming larger chains such as Tesco and Sainsbury with double-digit gains.
Figures from research firm Kantar Worldpanel yesterday showed Lidl had pushed its share of the UK grocery market to a record 2.5 per cent in the four weeks to March 20th, up from 2.3 per cent, while Aldi advanced from 2.8 per cent to 3.1 per cent. Market leader Tesco suffered a small decline. Overall growth for the normally resilient supermarket sector slowed sharply, from 3.9 per cent to 2.6 per cent – the first time in almost two years growth has fallen behind the rate of food price inflation. Separate data from Nielsen showed supermarkets have stepped up offers to woo shoppers, with promotions reaching their highest-ever level of 40 per cent.
In holidays, the slowdown has gathered pace in recent weeks and Britain is faring far worse than countries such as Germany, Thomas Cook said. In February the travel firm, Europe’s second-largest, reported summer bookings in the UK ahead by a healthy 6 per cent, despite higher prices. Now, however, the figure has tumbled to just 1 per cent and the group is cutting back capacity in line with the lower demand.
There is a glimmer of hope for Thomas Cook and the supermarkets too, although it’s a long shot. The holiday firm says it’s seeing “a lot of interest” in those wanting to make the most of Easter, the royal wedding and the May Day bank holiday, all of which fall over a three-week period from April 22nd.
With all the public holidays, it would be possible to take an 11-night break and still use only three days’ annual leave. It sounds attractive – but only if you’ve got the cash to pay for it.
Thomas Cook has put on an extra 100,000 holidays over the period, and is touting destinations such as Turkey and the Canaries.
The supermarkets, meanwhile, are hoping we all stay at home and perhaps throw a few street parties. There’ll certainly be a raft of cut-price deals to persuade us to do so. Either way, though, a three-week spending splurge next month will not be enough to rescue Britain’s faltering economic recovery, particularly once the Bank of England bows to the inevitable and raises interest rates. There’s every chance real incomes will fall again this year; if they do, it would be the first back to back decline since the 1970s.
There’s plenty to spoil the party: in the middle of the glorious run of bank holidays, and just two days before William and Kate tie the knot, we’ll hear how the economy performed in the first quarter of 2011. The Office for Budget Responsibility has predicted a big bounce-back, with GDP advancing by 0.8 per cent.
That looks optimistic against the background of gloomy noises from the likes of Thomas Cook and the supermarket sector. Disappointing growth figures on April 27th would certainly take the shine off any celebrations.
Fiona Walsh writes for the Guardiannewspaper in London
