Yahoo Finance Conservative majority sent us on a shopping spree? Pull the other one
Tills are ringing merrily in the high streets and it is all down to Boris Johnson. Thanks to the prime minister the dark clouds of uncertainty are scudding away and a grateful nation feels free to start spending again.
Really? Sure, there was a chunky rise in retail sales in January but in the latest three months – a better guide to the underlying trend – they were up by only 0.8% on the same period a year earlier. This is the weakest annual growth since 2013.
The “Boris bounce” theory rests on the highly questionable assumption that consumer behaviour is affected by political events rather than by other factors, such as whether they are better off than they were before and whether prices are going up or down.
January is the time consumers traditionally seek out bargains in the sales and, after two dismal months for retailers, there were plenty on offer this year. People had more money in their pockets because earnings are rising faster than prices. Put the two together and there’s a plausible reason for the rebound in spending, albeit without such a grabby headline.
Of course, there might be one or two individuals who said to themselves: “I am glad the Conservatives won the election by such a thumping majority and I am now going out and celebrate by buying a new sofa.” Equally, though, there were plenty of voters who wanted to hide under the duvet when they heard the result.
A more likely place for a Boris bounce to show up would be industry, since companies tend to be more sensitive to the political climate. There is ample evidence from the official figures of a mothballing of capital spending as a result of Brexit.
But the latest snapshot of manufacturing from the CBI paints a relatively downbeat picture. Output fell in the three months to February at an only slightly slower pace than in the quarter ending in January. While the employers’ organisation detected signs of a pickup, it made clear the rebound was tentative and fragile.
What’s true of manufacturing is true of the economy as a whole. The government would have us believe Britain is booming and the prime minister is responsible. Neither is remotely true.
Behind the Lloyds profits plunge
António Horta-Osório will have to scrape by on a mere £4.7 million after his pay was cut from £6.5m as a result of the profits fall at Lloyds Banking Group. Those LBG employees struggling to make ends meet – a third of them according to a union survey – are unlikely to lose much sleep over that.
Yet, while the focus was on the impact on profits of the continued high payments for payment protection insurance (PPI), the bank’s results also highlight the ferocious competition among mortgage providers to sell home loans. Dig deep into the latest results from LBG and the reason the UK’s housing market is on the turn becomes apparent.
Banks make their money from the spread between the interest rates they pay to savers and the higher rates that apply to borrowers. In the low-interest-rate environment of the past decade, this spread narrows.
The squeeze has intensified in the past couple of years because the housing market has been dormant at a time when banks have been awash with cash. Potential homebuyers have been deterred by sky-high property prices, so lenders have responded by offering ever-more attractive mortgage packages.
LBG, the UK’s biggest residential property lender, has sought to offset some of this enforced largesse by stiffing those taking out unsecured loans, but expects its net interest rate margin to fall in 2020. That’s because banks can either accept lower profitability or see their customers walk away. It’s not really much of a choice.
Social interaction, and trust, take a dip
Twenty years ago, the US political scientist Robert Putnam publisheda book called Bowling Alone, which chronicled the decline of civic engagement, the erosion of social capital and the growing mistrust of the government in the US.
Bowling alone has arrived in Britain. The latest official data for social capital shows that the simplest engagement with our neighbours – stopping to talk – has fallen by four percentage points between 2011-12 and 2017-18, while membership of political, voluntary, professional or recreational organisations dropped by five points over the same period. As for trust in the government, that was down 11 points in the past year. These are truly worrying trends.
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