What has happened to the UK consumer?

One of the apparent certainties of economic life is that the British consumer will take the advice of the Pools winner from many years ago and “Spend! Spend! Spend!”. This has led to another feature of our economic life because it seems to have been forgotten by many economists but before the credit crunch there were calculations that out marginal propensity to import from this was of the order of 40%. So there was a clear link to the trade deficit as well. Oh and for millennials reading this the Pools was gambling before there was a lottery, mostly in my experience by older people as for example my grandfather did but my father did not.

However last month provided a counterpoint to such certainty as the slowing in growth that we saw in the latter part of 2019 turned into something more.

In the three months to December 2019, the quantity bought in retail sales decreased by 1.0% when compared with the previous three months……..The quantity bought in December 2019 fell by 0.6% when compared with the previous month; the fifth consecutive month of no growth.

There was still some annual growth just not much of it ( 0.9%). This led to some sill headlines across the media as they used the British Retail Consortium claim that we had seen the worst year since 1995 for retail sales as click bait. That ignored the fact that its numbers are invariably much weaker than the official ones suggesting it id wedded to the bricks and mortar style retail sales which we know is troubled and not enough of the online world. Indeed there was far less reporting of this month’s effort from the BRC as the equivalent of tourists saw fewer easy pickings.

On a Total basis, sales increased by 0.4% in January, against an increase of 2.2% in January 2019. This is above both the 3-month and 12-month average declines of 0.4% and 0.2% respectively.

So weaker than last year but up and should it continue would end the decline in the averages. Actually we now know that the BRC was confused in this area as the inflation numbers did not pick this up.

We have to remember, this semi-positive performance will also be the result of aggressive discounts and consumers’ preoccupation with bagging a bargain.

Labour Market

This brings a contrasting theme as it should be supporting retail sales just as growth has faded away.

Between October to December 2018 and October to December 2019, the level of employment increased by 336,000 (or 1.0%) to a record high of 32.93 million.

There was also some real wage growth over the year just not as much as reported.

In the year to December 2019, nominal total pay (not adjusted for change in prices) grew by 2.9% to £544. Nominal regular pay grew by 3.2% to £512 over the same period. The recorded growth rates show that wage growth is decelerating.

Sadly many places fell for the real regular wages are back to the pre crisis peak spinning of our official statisticians as they cherry-picked from the very top of the tree. But even using more realistic inflation measures than the official imputed rent driven CPIH we still had some real wage growth.

Payment Protection Insurance

I have long argued this has been like a form of QE for the consumer and retail sales so this caught my eye earlier.

The bill for PPI claims in 2019 would be about £2.5bn, but Lloyds said no further provisions were needed as it had already set aside enough money.

It brings the total paid out by Lloyds over the mis-selling saga to £21.9bn. ( BBC )

Today’s Data

As suggested above we had a better month in January.

Retail volumes increased by 0.9% in January 2020, recovering from the falls in the previous two months; the increase was mainly because of moderate growth in both food stores (1.7%) and non-food stores (1.3%).

Actually if we look into the detail the underlying position is stronger and I am pleased to report that my main theme in this area was clearly in play.

Fuel saw a large fall of 5.7% in the quantity bought in January 2020 when compared with December 2019, which coincides with a rise in fuel prices of 2.3 pence per litre between December and January.

For newer readers I first wrote on the 29th of January 2015 that lower inflation boosted retail sales growth which you may note is not only true but the opposite of what central bankers keep telling us. I was involved in a debate with Danske Bank yesterday on this subject and in the end they agreed with me although that last sentence!

Higher than expected inflation makes people worse off, as it means people’s real wage growth is not as high as expected. That is why stable and predictable inflation is so important. Whether the target is 0%, 1% or 2% is less important.

Anyway returning to the data we see a corollary of my theme which is that higher prices should led to lower consumption which seems to be in play. It is probably also true that we are seeing the impact of the switch towards electric vehicles.


The better number for January although it may not initially look like it helped the three month average.

In the three months to January 2020, both the amount spent and the quantity bought in the retail industry fell by 0.5% and 0.8% respectively when compared with the previous three months.

This is because November and December were so weak that even a better January was unlikely to fix it. The Underlying index was 108.5 in October then went 107.7 and 107.1 before now rising to 108.1. The index was set at 100 in 2016 so we see this area has seen more growth than others.

On an annual basis we have some growth just not very much of it.

When compared with a year earlier, both measures reported growth at 2.1% for the amount spent and 0.8% for the quantity bought.


Today gives an opportunity to look at how economics applies in real world events. Having just lost all readers from the Ivory Towers let me apologise to anyone who was disturbed by any screaming from them! They may have just have been able to laugh off the idea that higher inflation is bad but the next bit is too much. You see we have a favourable employment situation especially with real wage growth being added to employment growth but we are losing two factors.

The first is the impact of the PPI claim repayment money which looks as though much of it went straight to the retail sales bottom line. Next there is this from the Bank of England.

The annual growth rate of consumer credit rose to 6.1% in December, having ticked down to 5.9% in November. The growth rate for consumer credit has been close to this level since May 2019. Prior to this it had fallen steadily from an average of 10.3% in 2017.

Whilst it is still the fastest growing area of the economy I can think of my point is that growth has slowed and that seems to be affecting retail sales. A particular area must be what is going on with car sales and a few months back the Bank of England said that but since then it has decided that silence is golden on this subject. For fans of official denials there was of course this from Governor Carney back in the day.

This is not a debt fuelled expansion


20 thoughts on “What has happened to the UK consumer?

  1. Hi Shaun,
    I was trying to work out the rise in retail sales this morning and you have done much of the hard work explaining how PPI has helped the consumer and credit increases as well, and the fact that overall retail sales seems to be slowing, I think I have got all this rtight.

    So thanks for all that.

    However it all this does show how bad it is affecting the high street we hear a day ago that shoe zone to close around 100 stores and Beales now saying all 23 stores will close after all initially it to be about 13 but they haven’t been able to find a buyer for the other stores.

    All this means up to 1300 jobs or so to go from Beales alone, this is after all those retail jobs at Debenhams last month. Some town centres has both a Beales and Debenhams so you can see how that will affect town centres and it will mean less and less footfall and more and more stores will close. The ones that are left should do quite well however.

    The question is where are we going next?

    All this depends I suppose on how the economy performs this year consumer credit cannot continue to rise the economy does not perform and which ever way one views all this the world economy is more global now than it ever has been and what happening in China will affect us all I hear this morning more warnings from companies not being able to get spare parts for their business.

    While watching business live it was also reported that India could possibly be in recession despite the economy growing at 4% because its the way people feel ! Now that is an interesting take and its not just the first time this has been mentioned.

    If one was to use the same viewpoint which some on here have in the past then we in the UK are actually in recession because despite a rise in wages it depends how your own particular circumstances pan out and how it feels to Joe Blogs on the street.

    Joe Blogs is actually pig sick of high house prices which equate into high rents and stressed out with working more stressful hours or has two or more jobs and on different working practices.

    All I can say is I remember the swinging sixties where I had my own business and there were loads of money flushing about and people thought they were doing well the factor workers were on piece work making very good wages indeed and this carried on into the 70s.

    All this leaves open the fact that retail sales aren’t doing as well as the figures suggest propped up by higher credit and one off factors like PPI. Unless the economy performs going forward retail sales will be at best difficult going forward.

    • The latest UK company to warn on the impact on Coronavirus was Norcross this morning a UK bathroom supplier who have performed quite well over the last 5 years or more. They have a bathroom supplier in China and the factory closures will affect supplies this year and also early next year so its shows how much disruption can affect a business 12 months or so in advance.

      Norcross :

      “Impact of the Coronavirus
      The Coronavirus has had little short term impact to date as our UK based stock levels have been sufficient to satisfy customer demand. However, based on the slower than anticipated return to full production at our China based suppliers we do now envisage that the supply chain disruption is likely to have some impact on the seasonally important remainder of this financial year and early next. The situation however remains fluid and is being closely monitored and actively managed. ”

      Not good!

      The UK more dependant than ever on shoes and clothes from China all this may mean costs could go up having to source clothes and shoes from other countries otherwise shelves will be empty. As cost go up Joe Blogs will have to either pay more then feel much poorer as I said above and then may have to go to charity shops which will increase their feeling oi low worth.

      cup of tea forbin ?

        • Then the food bank freebies and get branded and premium goods for nothing.

          But as to “what has happened to the UK consumer” they don’t seem to realise that credit can just go on forever and delusional.

          However the UK consumer isn’t totally stupid they shop more online now and use their I phones and computers to check where the lowest price is before they purchase hence the stores that cannot provide good value and competitive prices are going under.

          I cannot remember a time where retail was as bad post war I know the financial crisis closed many shops but not sure whether the situation now worse than before the financial crisis.

          I feel there must be less department stores left now on the High Street than in 2008/9 and many other well know retail stores also gone.

          Bon Marche’ is closing down its stores.

          My town id have both a Beales and Debenhams and the largest store now apart form out of town Tesco is a Marks & Spencer who only stock their own brands and you cannot really class Marks as a department store.

  2. The academics and economists at the Bank of England and the Treasury just cannot admit the UK consumer is getting poorer every year as a direct result of their policies and that they are in fact deflationary, however the statistics are calculated they never show the real truth: negative real interest rates and negative real wage rises-i.e wage rises less than the REAL rate of inflation are making everyone poorer and reducing their disposable income every year. We now have stagflation, where wages are falling in real terms against a backdrop of massive money printing that is causing inflation to run higher than wage growth. So why are they so confused?

    Quite simply because to arrive at the solution or even just to identify th problem, they would have to admit that they are the problem and have to raise interest rates and produce statistics that bear some semblance of reality to the real increase in the cost of living for the consumer.

    Can anyone show me an article by a mainstream media outlet or journalist that explains that the loss in purchasing power of the consumer is directly as a result of central bank money printing and fractional reserve lending, no? well that would be because there isn’t one and there never will be,it’s always because of the increase in the cost of oil, the weakness in the pound(caused by the Bank of England), the weather, an increase in the cost of raw materials(caused by central banks!) or other such nonsense.

    In the US the Fed is pumping in enormous sums of money every month to keep the stockmarket up, remember the collapse of LTCM in 1998? The estimated cost of the bailout for that was $4bn, to give you an idea of current Fed largesse, on Tuesday alone they printed up $90bn in ONE DAY for the repo market, and they are saying like our bank of England inflation is only 2% when in fact it is nearer 10%, and so you have junk stocks like Tesla quadrupling in less than six months and now it is getting even more bizarre, Bransons Virgin Galactic Holdings quadrupling since December, the market has gone mad, people are just buying anything, the worse the financial state it is in the better as far as investors are concerned. Leon Musk is able to say to shareholders at the recent earnings call that the company doesn’t need to raise money:“So in light of that, it doesn’t make sense to raise money because we expect to generate cash despite this growth level,” and then a week later announce a $2bn rights issue, and people continue to pile in.

    It reminds me of the eagerness of people to throw their money at a bubble, the South Sea Bubble was described as follows to potential investors:
    “A company for carrying on an undertaking of great advantage, but nobody to know what it is”.

    They could launch a company like that tomorrow with a similar prospectus and it would be oversubscribed.

    • the New South Sea Nuclear blast ? big Bang ?

      the trick is to get in early and bail out before the whole edifice collapses

      but when is that ?

      aye , thats the rub !


  3. Hello Shaun

    “This is not a debt fuelled expansion”

    never believe anything until it’s officially denied ….. eheheheh

    time for the Life Pension ?


    • Hi Forbin

      I am afraid a life pension will only be available for our betters and not plebs like us. Or rather those who appoint themselves as our betters. After all the move by central bankers into the climate change arena is simply breathtaking but goes mostly unchallenged. After all what do they know about the subject?

  4. Well, what a surprise – as I predicted years ago. The central bankers either do not understand the liquidity and where it actually is (about 4%rates) or they are pretending not to. I rather suspect the former A’s there is clearly no route map out of the current mess – well, what “emergency” lasts for ten years?
    Printing money they now think is the magic money tree, because there is little consumer inflation. Of course there isn’t – while there is localised cost push, inflation is a function of demand. Consumer demand has collapsed, because of the costs of assets or renting them – and as most of the private sector relies on end-consumption somewhere, there has been a fall in pay and we are in a desperate downward cycle. Cheap debt sustained the economy for some years, but debt has to be paid back and is only consumption brought forward. What are we left with? Silly house prices and a fight over granny’s house for some cash.

    I predicted this long ago. Then a few weeks ago, I was at a CISI meeting. I nearly fell off my chair when a Chinese- American CFA said that no-one understood the disconnect between fundamentals and share values ….. I nearly asked if he had any grasp of the Monetary Theory of Asset Prices, but thought it might embarrass him.

    • Hi davehmba and welcome to my corner of the web

      I do not know for how long you have followed my work but from my early blogging days I argued that reducing interest-rates below around 1.5%/2% was a mistake. I feared it would turn out to be a trap and it has.

      There are so many examples of this around as for example Sweden rushed into negative interest-rates and now has raised them to a grand 0%. Just in time for a slow down which may yet turn out to be a major one.

      But whilst there are some examples of countries at least looking for the exit door we see more signs of the spider’s web we are in.

      “The U.S. Treasury’s auction of a new 30-year Treasury Inflation-Protected Security went off Thursday with a sensational result: A record low real yield of just 0.261%, well below any 29- to to 30-year TIPS auction in history…….The coupon rate also set a record low of 0.250%, much lower than the previous record of 0.625%.” ( Seeking Alpha )

      • Hello, Shaun,

        I have been active under slightly different handles – so I will just say “Steve Priest for Governor” and you will recognise me!

    • Hi Eric

      You have reminded me that as well as the Littlewoods version there was Vernons too. My maternal grandfather used to do the former and because he lived centrally in Bermondsey I used to be able to get an evening newspaper with the football scores for him. They were produced with amazing speed as it felt it wasn’t much more than 30 minutes after the matches ended.

      Cheers for the Video which seems amazing really. Could it happen now?

      • If you were really desperate to know if you had 24 points on your 8 from 10 perm you could watch the scores coming through on the teleprinter, after the wrestling with Kent Walton on ITV’s World of Sport.

        • Hi Eric

          No he did that but also wanted to check against the newspaper. Meanwhile I saw this last night.

          I am pointing it out because the song which apparently was the song in UK skiffle originated from a company band/choir.

          • Hi Shaun,
            If you’re looking for bands with company origins then the 3 that spring to mind are
            The Sandbach Brass Band – originating in Foden Trucks
            The Fairey Band – from Stockport, Cheshire. The Fairey Delta 2 was the first aircraft to exceed 1000 mph in level flight.
            The Leyland Band , which I think dates from 1946.
            I’m sure there are more.

            All from a time when engineering and manufacturing were the backbone of the economy.

  5. Great blogs as usual, Shaun, today and yesterday.
    Thank you very much for your support for keeping the RPI-RPIJ formula effect series on the ONS database and opposing the dysfunctional change of the RPI to an imputed rents methodology, which is very much appreciated.
    There was never any reason to make the CPIH the deflator for UK average earnings series from the LFS. The CPIH is a duck-billed platypus of an index, a macroeconomic consumer price series with an imputed rents series tacked onto it.
    Yesterday, the same day the CPI update for January came out, also saw the 2019Q3 update for the ONS measures for owner-occupied housing costs. The update was so late to make improvements to the series for stamp duty. As I understand it, the series will now make an adjustment for stamp duty changes at the individual price quote level rather than on average house prices within certain price bands. The difference it makes is remarkable and the revised series shows much higher inflation in general over the period 2005 to date.
    Also, the series is calculated monthly, even though the measures for OOH costs have only been published quarterly. One can see, for example, that in September 2019, the annual increase for the revised stamp duty index was 3.3%, up from 2.6% in August. If stamp duty had been included in the RPI and RPIJ series, as it certainly should have been, the RPIJ annual inflation rate would have been boosted in both August (2.2%) and September (2.1%). The discrepancy between its inflation rate and the much lower inflation rate for CPIH (1.7% in both months) would have been even larger. So real wage growth has been even more badly over-estimated than my own estimates , based on deflating using RPIJ, would indicate.
    Tanya Flower does not mention in the update whether she means to supplement the existing OOH costs series with a second payments series, more broadly defined than the existing series, to measure HCI-C (HCI-Capital). Presumably she does. The existing payments series is used in calculating the current HCI series, but it only reflects housing prices in its mortgage interest component and in transaction costs. Except for some of the latter it isn’t very different in its treatment of housing prices than the OOH component of the RPI prior to 1995, when the depreciation component was added.

    • Hi Andrew and thank you for your kind words.

      CPIH is completely unfit for purpose whereas RPIJ has or perhaps we should say had much more going for it. It is a sign of what a mess the UK statistics establishment is in that they have plugged the former and abandoned the latter.

      Thank you for the reminder about the net acquisitions series. I thought about it when going through the inflation numbers and recalled it being delayed but failed to check if it had now be released. I must say I do not like this bit at all.

      “Owner occupiers’ housing costs (OOH) are the costs of housing services associated with owning, maintaining and living in one’s own home. This is distinct from the cost of purchasing a house, which is purchased partly for the accumulation of wealth and partly for housing services.”

      Back when I bought my flat I needed somewhere to live and the other part seems set to justify the fantasy imputed rents.

      However this did make me laugh 🙂

      “Because of the methodology used to calculate the owner occupiers’ housing costs rental equivalence approach – OOH(RE) – it is not possible to present a contributions chart for this approach.”

      Well no because there aren’t any…

      How did they get themselves into such a mess over what is a simple concept like Stamp Duty? I know you follow such matters closely.

      • Shaun, I don’t really know. I remember that you complained earlier and I agreed that the quarterly OOH(NA) series didn’t seem to be showing nearly enough inflation over the years. We both thought that the weight attached to the new housing component was a big problem, and of course it is, but it seems that stamp duty also contributed. If I am doing my sums right, the old stamp duty index actually fell between January 2005 and September 2019 at an annualised rate of 0.98%, while the revised index rises at an annualised rate of 5.3%.The explanation provided by ONS doesn’t seem sufficient to explain such a radical change, so I suspect there was some error committed that ONS doesn’t want to admit to that induced a chronic downward bias. In any case, the new series looks much more reasonable.
        No, the stamp duty index shouldn’t be all that difficult to calculate. There are only three tax regimes for the four home nations. In Canada, six provinces have their own land transfer taxes, while in Nova Scotia, there are municipal land transfer taxes. The two largest Canadian cities, Toronto and Montreal, also both have municipal land transfer taxes, even though their provinces also have land transfer taxes. That’s not all, but it is enough to show it is much more complicated here. Of course, in the Canadian CPI, it isn’t calculated, even though, unlike in the Retail Prices Index, it is in scope. A proxy index is used instead, and a more ridiculous proxy would be difficult to imagine, including, the last time I checked it out, the CPI for dental fees!
        It seems that the OOH(NA) series is calculated as a monthly series, so there is no good reason why it could not be published monthly as well, as its stamp duty component just has been. The CPIH(NA) series could be, and should be, also published as a monthly series. The ONS was never obliged to publish only the detail demanded by Eurostat, and is still less so now that the UK is out of the EU. If it could be calculated in a more timely way, it would seem to me the CPIH(NA) is already a better, more defensible, target inflation indicator for the Bank of England than the CPI.

  6. Re whats happening with car sales they were down 13.7% Jan 19 to Jan 20 for private purchases and certainly my experience with work colleagues who had PPI payouts invariable it when on a holiday or a new car. Also in the majority of cases people got more money they ever reckon they paid in so PPI could potentially be a very clever way of legitimising helicopter money.

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