The business was better than expected this year for Paul Ascue’s sophisticated restaurant in central Liverpool. He feared for his future amid the worst crisis in the cost of living in a generation, but so far the players kept coming.
“January is usually the quietest month,” says the chef at the Art School restaurant, where menus start at £ 39 a head. “But people felt liberated and came out in large numbers. The beginning of the year was better than we could have hoped for, and it continues. “
Faced with the biggest blow to household incomes since the beginning of modern records in the 1950s, UK companies are preparing to slow down consumer spending as the price of everything from gas and electricity to food and clothing is rising.
But experts say a two-speed consumer economy could emerge, with richer households saving a record amount during the blockade still spending. The signs are there: in addition to rushing back to restaurants, this Easter there was a rush to the airports and the housing market is booming. And all this despite the worst inflation since at least 1992 and amid reports of rising food bank use and growing fuel poverty.
savings factors
For Ascu, reservations for May and June have been delayed, and he worries that tight budgets may repel visitors. Its costs are also rising: the prices of beef and lamb are rising by more than a quarter, which may force it to increase menu prices.
“I think once people see direct debits, energy bills and the weekly store, they’re going to start falling,” he said. “It’s a concern.”
His hope is that an oversaturation with savings on blocking and a desire to spend on experiences rather than physical goods after two years of waiting will make visitors come.
“We may be isolated from the holiday effect, which has given some people more money in their pockets. This can help in three to six months. But how long that lasts is the big question. “
For now, the picture is mixed. Consumer confidence plummeted in April to its second-lowest level in nearly 50 years as energy prices and tax increases helped bring inflation back. Retail sales fell more than expected in March as soaring food and fuel prices forced shoppers to tighten their belts. Some economists warn that a summer recession could be expected.
Part of the decline in retail trade is due to consumers switching to service costs after the end of restrictions. Supermarkets have won by blocking, but now face stiff competition such as pubs, restaurants and travel.
Consumer confidence flashes a big red warning sign. You don’t usually get that low of trust without consumers cutting Robert Wood, Bank of America
Retail accounts for about one third of total consumer spending. Credit and debit card data from Barclaycard show that other forms of spending thrive on the Easter weekend while Britons enjoy the days of sunshine. Restaurant sales increased 116% compared to Easter 2021 and more than a third compared to 2019. Pubs, bars and nightclubs jumped 74% from pre-Covid levels.
Some economists believe that saving helps. According to the Bank of England, more than £ 200 billion was salted during the blockade, but it was concentrated in the top 40% of the richest households and in occupations where homework was possible. Poorer households lost money during the pandemic and are also expected to suffer the biggest blow to their income.
“The least affluent households will be disproportionately affected because most of their income goes to food and energy,” said Richard Lim of Retail Economics. “It’s a very uneven picture.”
retail sales
The data of the Deloitte accountant confirm this. They show that 5% of households with an income of £ 10,000 or less managed to save in the first three months of this year, compared to 38% of households with a total income of £ 100,000.
While the economy could be helped by spending savings, analysts say it will still be under strong pressure and could be close to stopping as many people tighten their belts. Upcoming winds include higher interest rates and a further increase in the ceiling on gas and electricity bills this fall.
“Consumer confidence is flashing a big red warning sign,” said Robert Wood of Bank of America. “Usually you don’t get that low trust without consumers dropping out. And if they are, we may be pretty close to a recession. There is a huge blow to real incomes. “
Unlike some analysts, the US investment bank does not predict a recession because it expects business investment to recover and some households to withdraw their savings, while others increase their loans. But consumers make up two-thirds of the UK economy, so the stakes are high.
“If the consumer stops growing, the economy as a whole stops growing,” Wood added. “That’s the biggest concern this year.”
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