Thursday, 27 December 2007
Shopping our way out of a recession
At last, some good news from the shopping centres. Figures from Footfall, the market research group, showing a 25.1% increase in shopper numbers for the last weekend before Christmas compared to 2006. The UK shopper may have saved the day. All that buying might have kept the the UK from slipping into a recession, at least for a while.
It remains something of a mystery what keeps the UK shopper going. It certainly isn't income growth, which in recent years has barely kept up with inflation. The level of consumer debt now stands at 160 percent of disposible income. With that kind of debt burden, it would be reasonable to think that consumers would stop and try to repay some of it back. However, neither crushing debt levels nor stagnant income can keep the consumer away from the shops.
This week's spending spree only serves to highlight the contradictory policy stance of the Bank of England. Recent data shows that the economy grew very rapidly in 2007; the credit crunch hasn't deterred consumers from shopping, while inflation is rising sharply. However, the Bank of England seems desperate to cut interest rates.
The contradictions can only be explained by recognizing that the Bank of England has changed its mandate. It is no longer interested in price stability. Instead, it wants to maintain house price inflation.