Bad Memories Of Price Spike Return To Haunt U.K. Retailers: Gadfly
The specter of a spending squeeze is stalking retailers once more.
The pickup in U.K. inflation to the fastest pace in almost two years in September will give retailers an unwelcome jolt. They won't have forgotten the situation five years ago, when soaring prices ate into consumers' disposable incomes.
Britons took to buying less at the supermarket, and put off purchasing that new winter coat. That prompted an unprecedented decline in the volume of food sold in the U.K, drove shoppers into the arms of German discount supermarkets Aldi and Lidl, and led to a spate of profit warnings from non-food retailers.
The chart below shows how the return of spending power, as happened in late 2014, can lift retail sales.
Inflation is still well below the Bank of England's 2 percent target. But with the prospect of weaker sterling pushing up the cost of imported goods, higher prices are on their way. If wages don’t keep pace, another squeeze on spending may be in store.
Add in concerns about potential job losses, and that could make consumers even more cautious. Any Brexit bounce would then seem like a distant memory.
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