Britons love a windfall. When the building societies became banks, consumers sold their shares and went on a spree. When they received compensation for wrongly sold payment protection insurance, they blew the lot on new cars and cruises.
So when oil prices crashed in the second half of 2014, it was a no-brainer that shops and stores could look forward to a promising start to 2015. Faced with the choice between banking the savings they were making on filling up the car and a bit of retail therapy there was never any real doubt about what consumers would do.
The latest official data proves the point. The volume of retail sales was up 1.2% between March and April, while the quarterly increase – a better guide to the underlying trend – was 0.7%. No hint there that consumers were apprehensive about the election result. While the politicians were out campaigning, voters were out shopping.
The boost to disposable income from cheaper energy costs is only part of the story. Unemployment is falling and confidence is strong. Retailers have been cutting their prices, and with the cost of goods down by more than 3% year on year, there are plenty of bargains to be had.
Areas of spending not covered by the retail sales figures – new cars and restaurants –have also been strong. All of which makes it likely that the economy will pick up after the unexpectedly soft growth of 0.3% in the first three months of 2015.
At one level, George Osborne will be comforted by the retail sales figures, since they suggest that the economy has enough momentum to cope with the cuts in Whitehall spending and welfare benefits that he will announce in his July budget.
But the data also serves to reinforce the chancellor’s message in his CBI speech that action is needed to tackle Britain’s woeful productivity record and to rebalance the economy.
As HSBC has noted: “The new UK government faces a trio of structural economic challenges that must be addressed to ensure long-term prosperity: stagnant productivity, and large public sector finance and current account deficits.”
What needs to happen is clear. Britain needs to invest more, become more efficient and produce quality goods and services that are internationally competitive. That would raise real incomes, improve the public finances and close the trade gap.
Osborne knows all that. He also knows that no chancellor in living memory has had a problem getting consumers to spend. That’s the easy bit.
