The State of the UK Retail Economy in the Light of the Energy Crisis
The energy crisis in Europe is affecting everyone in Europe, from European governments to every European individual and family, and everyone is facing difficult choices. Unfortunately, however, with expectations of increased energy demand and lower temperatures across Europe, the wildly spiraling price of gas will continue to rise until the market bottoms out or governments are forced to intervene by force. The retail market in the UK has taken a completely different turn from previous years as a result of this energy crisis. With the outbreak of the Russia-Ukraine conflict, the energy crisis in European countries had to be put on the desks of national governments, but in fact, the UK’s energy crisis was already buried in 2021, when wholesale gas prices began to rise as European countries reopened from the epidemic embargo, leading to a surge in global demand. Since the summer of 2021, eye-watering energy prices have caused 29 small energy suppliers in the UK to go bust. Those that have survived have passed on most of their costs to customers. In early 2022, the UK government insulated ordinary households from 90 per cent of the expected energy price increases through tax cuts, energy bills and direct payments. However, the fiscal burden has caused gas and electricity prices to soar since then and energy prices are expected to continue to rise in the future. the Russia-Ukraine conflict, which began in late February 2022, and the resulting energy crunch, has further pushed up energy prices. Western countries have banned imports of Russian coal and oil, while Europe is desperately trying to break away from its dependence on Russian gas. The UK did not import any fuel to Russia for the whole of June.
British consumers are snapping up products such as blankets, candles and air fryers in an attempt to reduce household energy costs this winter, the British Retail Consortium (BRC) said. demand for duvets and electric blankets rose by 8% in October, and demand for candles by 9%. Meanwhile British consumers are buying more thermal underwear, gloves and robes to reduce their energy bills without turning on the thermostat.
The energy crisis has hit UK consumers hard on the consumer message, despite people looking for alternative ways to reduce the costs associated with direct energy use. Overall retail sales in the UK continued to fall in September, taking inflation into account, with BRC and consultancy firm KPMG reporting that UK retail sales rose by 2.2% last month, up from a 1% growth rate in August. The slight increase in retail sales against a backdrop of inflation is masked by a significant fall in the volume of goods sold. Inflation in the UK currently stands at 9.9% and is now close to its highest level in 40 years.
In the August 2022 Retail Spending Report published by the UK Statistics Authority, it was mentioned that UK consumers spent 9.5% less on online purchases in August than in the previous year. Of all the items sold online, household goods were the category that saw the biggest drop, with their sales falling by 16.3% year-on-year. Joining online shopping in the cold winter was the cross-border e-commerce sector, with the pound falling below its lowest value against the US dollar since 1985 to US$1.04 on 26 September. The devaluation of the pound has caused sales in the cross-border retail sector to plummet —- People are reluctant to pay far more than usual for cross-border goods, especially at a time when prices are going crazy. In response to this downfall, some cross-border e-commerce platforms such as Bangood have switched on sterling local currency settlement services, and the cross-border e-commerce industry has still been hit.
The dire state of the retail sector has clearly caught the attention of the British government, and as soon as he took office, Prime Minister Tony Truss introduced an energy subsidy scheme to calm British anxiety over soaring energy prices and the high cost of living. And this biggest fiscal stimulus package in half a century, with policies such as tax cuts and freezing retail energy prices, has fueled inflation, even if it has helped economic growth and consumer confidence. And the huge fiscal hole created by some of these stimulus policies will eventually have to be solved by the government issuing debt, which has to be backed by the central bank, meaning that the government expects the central bank to continue its quantitative easing policy.
The UK’s downward spiral in consumption cannot be solved by simply introducing subsidies. The past six months have not been quiet in the UK. On the one hand, inflation has far outstripped people’s spending power and income levels, and on the other hand, news of the war and the sad news of the Queen’s death, among other things, has continued to affect people’s spending power subjectively. In fact, the first economic reforms since Truss took office were not successful, and on 14 October the Chancellor of the Exchequer, Kwasi Kvotheen, was dismissed by Truss. The new Chancellor of the Exchequer, Jeremy Hunt, then issued a statement on the 17th, saying that “almost all” of the tax cuts announced by the government in September this year would be cancelled.
From the current trend, the UK’s retail decline will continue for some time. In order to solve this problem, the British government needs to carefully find a balance between stimulating consumption and inflation, and more importantly, whether the British government can get external input to solve the government’s financial problems, or whether European countries can find a solution to the energy crisis in the short term.
By JIN Kaiwei
