How will the struggling economy impact on consumers?
After the Chancellor’s ‘Mini-Budget’ announcement last Friday (23rd of September), the UK’s economic woes only seem to worsen – despite having slipped into recession a day prior. The budget seeks to slash the tax bills of the highest earners from 45% to 40% and that of the basic rate by 1%. The planned 6% corporation tax rise was also reversed, revising the rate back to the 19% threshold.
The budget’s impact was immediate, with the pound falling from $1.20 to $1.03, its lowest level against the dollar (USD) since decimalisation in 1971, before slightly recovering to $1.06. The market, anticipating ‘significant monetary response’ from the Bank of England’, saw yields on Two-year and Five-year gilts increase to c.4.5%, their highest level since the financial crisis, making government borrowing much more expensive. The BofE is expected to increase base rates again to sure up the pound, despite rates already being bumped up to 2.25%, their highest level since the 2008 recession.
Against the backdrop of inflationary pressure, a hangover from the pandemic’s supply-chain constraints, pressures have been exacerbated by high energy costs and a weakening pound making imports more expensive. The UK operates a trade deficit which the ONS estimates has grown by £2bn to £27.9 billion in Q2 2022, “the largest on record”.
What does this mean for the consumers? A weakening pound will make imports more expensive, assuming these costs are passed on, consumers will feel the price-pinch more acutely. And consumer confidence levels are at an all-time low, which according to GfK dropped to -49 on the day of the Mini-Budget announcement.
Using VI’s market-leading mobile location data to see how consumer behaviour has changed over this year compared to 2019 levels, it is clear the economic woes are weighing on shoppers.
Across eight of the UK’s largest cities and the West End, the average weekly visits across the sample have declined by 29% compared to 2019 levels since the start of the year, indicating that consumers have likely reined in visits to city centres. However, the decline in visits wasn’t felt equally, with the West End, Manchester and Birmingham experiencing an average weekly drop of 39%, 36% and 37%, respectively. In contrast, Newcastle saw a 1% uplift in average weekly visitors compared to 2019 levels.
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