The Reasons for the Decline of British Retail Sales
Recently, the decline in British retail sales has been the focus of some news organizations. On June 7, the British Retail Consortium (BRC) said British shoppers continued to cut back on spending in May as inflation soared, with retail sales falling by 1.1 percent in May from a year earlier, Reuters reported. That was the biggest drop since last January. Furniture, electronics and other expensive items were hardest hit, but sales of fashion and beauty products rose as people prepared to go on holiday and get away for the summer, the report said. While prices are soaring, retail sales are falling. With prices continuing to rise and energy costs likely to rise further in October, the situation for UK consumers could get worse and there is no sign of cost relief for retailers in the near future.
Retail prices rose by 2.8 per cent year on year in May, the highest since July 2011, according to the British Retail Consortium. Other data showed food price inflation rose to 4.3% in May from a year earlier, which has been the highest since April 2012. Fresh food prices rose to 4.5 percent year on year. According to my summary, the reasons for the decline in retail sales in the UK can be attributed to the following two categories. The first one is the rise in commodity prices in the UK. Generally speaking, commodities include raw materials such as coal, oil, and colored minerals, as well as grains and cash crops such as wheat, corn, and soybeans. When prices of these commodities rise, the cost of UK factories will increase. The increase in the cost of raw materials will directly lead to increase in the prices of their corresponding products, resulting in a general price increase in the country. This would hit Britain’s manufacturing sector hard in many ways. For example, a sharp increase in the procurement costs of manufacturing enterprises may
cause great losses to the profit of orders that have been signed. The second category is inflation. The rising inflation in the UK has brought about greater consumption pressure on British residents and a decrease in consumer desire. Surveys have found that UK consumers are reducing “extravagant behaviors” such as digital subscriptions and eating out to save on the cost of living. What’s more, a lot more Britons tend to buy discounted goods, cut back on fish, meat and alcohol expenses, and drive fewer cars to save on petrol. Based on the principles of economics, it is simple to conclude that when the scale of demand is significantly smaller than the size of supply, prices rise. The same logic can be used to explain the rise in retail prices in the UK. My suggestion for the rise in commodities is that the UK government should strike a balance between preventing the epidemic and promoting the return of manufacturing to normal operations, while also taking measures to alleviate the pressure on crop cultivation and supply. As for the problem of inflation, I think the UK government should mitigate it through the implementation of appropriate monetary and fiscal policies through the central bank.
By Tao Cheng
