Rates rise won’t affect consumer spending

The majority of economists believe the Monetary Policy Committee will
raise interest rates in November. If that happens, will we see consumers begin
to curb their spending?

I think the interest rate is likely to rise, and it is predicted to rise into
the New Year as well. Will that necessarily curb spending? I don’t think so.

I think the feel-good factor is pretty strong in the economy and the recent
figures about rises in London house prices in the last three months are
indicative of underlying consumer confidence, so I don’t expect consumers to be
reducing their spending.

So it’s not devastating news for retailers?

It isn’t. And interestingly we have done our preliminary analysis of retailers
and we have done a survey with them about their expectations for Christmas, and
they seem relatively buoyant in their view that this won’t be as bleak as it was
last year.
Retail sales in London, in particular, during September were strong, but
the British Retail Consortium has warned that growth in sales is unlikely to
continue over the crucial Christmas period. Do you agree with that?

I think sales over the summer were strong, and the September numbers were strong
too. It will depend on who you are as a retailer which will determine how you
are doing.

Underlying sales at organisations like Tesco, John Lewis, Hobbs, New Look and
a number of retailers is very strong. There are others that are not faring so
well. If you take the proportion that the big retailers make up of the total
retail group of the UK (so you’re talking Marks and Spencer, Tesco, Sainsburys)
and you add them up, they are all showing very positive strength. And therefore
I am expecting a positive response in terms of like-for-likes coming in to

So what’s really propping up the consumer spending?

I think it is the feel-good factor that I alluded to earlier, again our
preliminary research we have done about consumer’s spending habits for Christmas
indicates that they are expecting and are experiencing a squeeze, for various
reasons, but nevertheless they’re telling us their intent is still to go and
spend this Christmas.

And what data will you be watching in the months to come to give you
an indication of how the consumer’s holding up?

Looking at sales of electrical items, looking at the demand for discretionary
type spend, rather than the spend on the standard grocery shop, this is where
people will start now, as we head into the ‘golden quarter’, start doing their
gift shopping for Christmas; certainly some of the early starters will start
doing that and those are the sort of things we will be looking at to check where
the economy is going, and what consumer confidence is actually doing.

You have said in the past that discounting is here to stay. You think
it’s the case that certain retailers are now adapting to the tougher
environment. Which retailers are leading the way on this?

I think discounting is here to stay and you’ve got some great price points at
companies like Primark who are really, really scoring hugely in the retail
marketplace from a discount point of view. But when we look at the competitive
landscape, and let’s look at the grocers for example, somebody like Sainsbury’s
was noticeably absent for some time, without having a value range.

They now introduced their ‘Basics’ range because they now understand that for
some shoppers the value is in the price and therefore they need to offer that
discounted range to enable shoppers to be able to buy, select, pick and choose.

It’s interesting because consumers, whether they’re affluent or whether they’re
not so affluent, pick and choose the products they buy from a price point
perspective. They will buy expensive things and they will buy cheap things
depending on their personal preference.

So it is the retailers that are actually allowing the consumer to be able to
choose and be flexible in their shopping habits, they’re the ones who are really

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