When the chief executive of Tesco reportedly breakfasts at the weekend with the Governor of the Bank of England, emphasising the extreme fragility of consumer confidence and pressing for an interest rate cut, it’s a sure sign of torrid times.
But whatever Sir Terry said over his bacon and eggs seems to have created enough indigestion in Threadneedle Street to prompt drastic action. Just a few days later, the bank cut borrowing costs by an unprecedented 1.5 percentage points. And that may not be the end. Economists believe rates could fall further still, perhaps down to 1 per cent.
Lower rates are good news but no miracle cure for retail’s sickness. Just as rate rises take a while to draw shoppers’ purse-strings tighter, reductions take time to loosen them.
In today’s dire circumstances the process may be even more drawn-out than usual. Consumer confidence has been shot to pieces by the savage impact of the credit crunch.
Since being bailed out by the Government – aka the taxpayer – banks have shown little inclination to pass on rate cuts. The Chancellor had to force the kicking and screaming financiers to reciprocate some of the public largesse.
It’s hardly the sort of behaviour that will help restore confidence in the financial system and, more particularly, revive shoppers’ willingness to spend. But although the downturn has a distance yet to run, the interest rate cut – and those still to come – will ultimately have an effect. At the end of last week, retailers across the board enjoyed share price rises.
Marks & Spencer and HMV were among the beneficiaries, and broker Cazenove switched its stance on general retailers from neutral to overweight.
Analysts and retailers alike expect tough trading to continue throughout next year. But, just as the City likes to sell before a crash, it likes to buy early enough for the upside.
And perhaps there may be a little more upside soon. As Retail Week went to press politicians were arguing about how taxes could be cut. The row was all about the detail. On the general principle, there was little disagreement.
In the present dismal economic circumstances, consumers may be as likely to ask how on earth all this is going to be paid for rather than take the money and run. But tax cuts, or some sort of holiday, along with other measures, might just give a welcome boost to spending.
Retail’s recovery has not yet begun, but perhaps the beginning of the beginning is just visible on the horizon.
George MacDonald is deputy editor of Retail Week
Visit retail-week.com today to watch Tim Danaher and George MacDonald discuss the week’s retail news in TGi Friday
Lower rates are good news but no miracle cure for retail’s sickness. Just as rate rises take a while to draw shoppers’ purse-strings tighter, reductions take time to loosen them.
In today’s dire circumstances the process may be even more drawn-out than usual. Consumer confidence has been shot to pieces by the savage impact of the credit crunch.
Since being bailed out by the Government – aka the taxpayer – banks have shown little inclination to pass on rate cuts. The Chancellor had to force the kicking and screaming financiers to reciprocate some of the public largesse.
It’s hardly the sort of behaviour that will help restore confidence in the financial system and, more particularly, revive shoppers’ willingness to spend. But although the downturn has a distance yet to run, the interest rate cut – and those still to come – will ultimately have an effect. At the end of last week, retailers across the board enjoyed share price rises.
Marks & Spencer and HMV were among the beneficiaries, and broker Cazenove switched its stance on general retailers from neutral to overweight.
Analysts and retailers alike expect tough trading to continue throughout next year. But, just as the City likes to sell before a crash, it likes to buy early enough for the upside.
And perhaps there may be a little more upside soon. As Retail Week went to press politicians were arguing about how taxes could be cut. The row was all about the detail. On the general principle, there was little disagreement.
In the present dismal economic circumstances, consumers may be as likely to ask how on earth all this is going to be paid for rather than take the money and run. But tax cuts, or some sort of holiday, along with other measures, might just give a welcome boost to spending.
Retail’s recovery has not yet begun, but perhaps the beginning of the beginning is just visible on the horizon.
George MacDonald is deputy editor of Retail Week
Visit retail-week.com today to watch Tim Danaher and George MacDonald discuss the week’s retail news in TGi Friday
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