23 November saw Philip Hammond’s debut Autumn Statement and it contained some significant changes for retailers; both good and bad.
Gerald Grimes, Managing Director of Hitachi Capital Consumer Finance, brings you the key challenges to arise from the announcement, as well as the key opportunities.
- A slow down for economic growth
The Office for Budget Responsibility – the independent body that provides the figures for these occasions – has downgraded its forecasts due to the uncertainty thrown up by the EU referendum result. It now expects economic growth to slow from 2.1% this year to 1.4% next year and 1.7% in 2018.
- Inflation is back
Inflation is on the rise as the depreciation of the pound makes imports more expensive. Prices are set to increase by 2.3% next year and 2.5% the year after. After several years of unusually low inflation, these numbers are quite a change. As the Chancellor said in a recent television interview, ‘Inflation is back’.
So far as retailers are concerned, the side effects of this lower growth and higher inflation aren’t necessarily happy ones. According to the OBR, household budgets will be squeezed, which will in turn suppress consumer spending.
- A cut to corporation tax
For businesses, the Chancellor confirmed that the main rate of Corporation Tax will be cut from its current 20% to 17% in 2020. For consumers, he has set the same timeline for raising the tax-free Personal Allowance up to £12,500 – which equates to a £300 tax cut for most workers. We’ll have some money in our pockets after all.
- Fuel duty is frozen
Thousands of delivery men and women would have cheered at George Osborne’s cut to Fuel Duty in March 2011, and the way he froze it at 57.95 pence per litre from that point on. And now the new Chancellor has decided to follow his predecessor’s lead, and keep it at that level for at least another year.
- New homes to fill
Some of the other announcements in the Autumn Statement will have benefits for retailers, even if they don’t seem to at first. As part of his £23 billion drive to improve the country’s infrastructure, Hammond has allocated £2.3 billion for the construction of 100,000 new homes. On top of this, there’s £1.4 billion for an extra 40,000 affordable homes, and another £1.7 billion to speed up building on public sector land. All of which is to say, there will be a lot more houses, and those houses will need filling. This could be a boom time for furniture stores.
- A resilient High Street
Britain’s retailers have fought against unfavourable economic circumstances in the past – and won. As difficult as things were in 2008 and 2009, the retail sector has since grown enormously. The volume of things bought in our shops has risen by 20%, whilst the amount spent has gone up by 29%.
How was this success story achieved? In part, by the High Street’s willingness to discount its prices. Sales and specials have proliferated, and it’s kept the punters coming in. What a happy coincidence, then, that Philip Hammond’s first Autumn Statement is followed by the Black Friday and Cyber Monday weekend that is expected to raise £4 billion for British retailers.