Comment: The consumer environment: on an even keel
With temperatures soaring well into the eighties and the World Cup in full swing, the past few weeks must have seemed like Nirvana to many publicans - at least those in England. But the football will soon be over and forgotten about, the British summer will doubtless run its unpredictable course, and caterers and publicans will turn their thoughts to implementing next year's smoking ban.
But what of their customers? How is sentiment and spending bearing up after nearly two years of a mild but protracted downturn?
The consumer spending environment has been subdued for the best part of two years, at least in comparison with the long boom which lasted from 1996 to the autumn of 2004. But that doesn't mean to say that the nation's high streets are now boarded up or that its pubs are devoid of customers. All that has happened is that spending has grown at a more sedate pace than everyone had become accustomed to. Whereas total expenditure by households grew at between 4.5 per cent and 5.5 per cent in the years from 2001 to 2004, the rate of increase in 2005 slipped to under four per cent - hardly a disaster.
This year got off to a poor start, but seems to have got better as it has gone along. The best evidence for this comes from the various monthly surveys of retailers. Despite carrying a burden of outstanding debt of some £1.2 trillion, and the first sustained increase in unemployment since the early 1990s, people still seem able and willing to tap into their equity to sustain spending. The housing market also perked up in the early months of the year, but may again be cooling as hopes fade of imminent cuts in interest rates.
As a nation we spend around £30bn a year in pubs, including food and soft drinks. Meanwhile, the Office for National Statistics reports that spending on alcoholic drinks in all licensed premises increased by 3.6 per cent in 2005, pretty much in line with the trend in overall consumer expenditure.
The good news for the trade is that people's greater wariness
about spending hasn't made much of a dent in their appetite for going to the pub. Surveys of consumers suggest that this is largely due to caution about making "big ticket" purchases, with official
figures showing a marked slowdown in the growth of spending on cars and household goods.
Looking ahead, it seems the economy will continue to sail along on a fairly even keel. Overall growth this year will come in at between two per cent and 2.5 per cent (after taking account of inflation), which is only fractionally below the long-term average. Inflation remains well under control. The annual rate of Consumer Price Inflation (the measure targeted by the Bank of England when setting interest rates) remains anchored at close to two per cent, and there is no evidence at all of the destructive wage-price spirals which characterised the 1970s and 1980s. Although consumers remain under some pressure, especially from higher fuel costs and energy bills, the global economy remains in robust health, and the government is still increasing spending on public services at a rapid pace.
This all sounds desperately dull, but it sure beats the sort of boom-bust rollercoaster ride that Britain suffered several times between the 1960s and the early 1990s. Gordon Brown is forever going on about "stability" - well, this is it. Indeed, the economy is so steady at the moment that nobody can be sure of the direction of the next move in interest rates. As things stand, the members of the Monetary Policy Committee could safely take a holiday for a few months. Base rates are therefore likely to remain at 4.5 per cent for at least the remainder of this year.
What all this means for publicans is that they can get down to the nitty-gritty of preparing for the ban on smoking without having to worry unduly about the wider economy. Consumers may not have too much to celebrate, but neither are they likely to be battening down the hatches.
l Mark Berrisford-Smith is senior economist at HSBC Bank
