High Street faces crisis as millions of brits struggle – new warning issued

Business

Inflation rates discussed by Interactive Investor experts

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High streets have had a tumultuous time during Covid with changing restrictions hitting footfall. The key pre-Christmas trading period in particular was badly hit due to the emergence of Omicron however the sector has proved resilient, entering 2022 with a bounce back. Sales volumes rose 1.9 percent in January, beginning to reverse a four percent decline in December, with sales volumes overall now 3.6 percent above their pre-pandemic levels, according to figures from the Office for National Statistics. In a sign of the falling impact of Covid footfall to bricks and mortar stores has proved resilient while online sales saw a decline.

So far consumers have shown a strong willingness to spend, making use of pent up savings from lockdown, but with rising costs to come this year concern is turning to how long the high street’s recovery can last.

Shachar Bialick, CEO of financial app Curve, warned that today’s figures “should be taken with a pinch of salt.”

He explained: “The reality is that inflation is already reaching new record levels, tax hikes and rising bills are set for the coming months, and people may start to feel less confident with their money.”

Inflation is currently surging towards a predicted peak of 7.25 percent this spring with most recent readings putting it at 5.5 percent already.

Meanwhile consumers are set to see further cost pressures ahead, particularly energy bills which are set to rise over 50 percent in April when Ofgem’s price cap is raised.

The same month will also see a hike in national insurance meaning a worker on £30,000 a year will see their take home pay drop by around £255 a year.

Today’s ONS figures showed a fall in shop food sales as more people returned to eating out post-lockdown, however such spends could quickly become a casualty of squeezed household budgets.

Helen Dickinson, Chief Executive of the British Retail Consortium, warned: “Rising inflation means households may be preparing for future falls in disposable income, including from April’s National Insurance and energy price cap rises.

“Retailers face similar challenges, with increases in transport and energy costs, global commodity prices and domestic wages.

“While retailers are going to great lengths to mitigate or absorb these cost increases, it is inevitable that prices will rise further in the future.”

The British Chambers of Commerce recently warned of a “cost of doing business crisis” with three in four firms found to be raising prices due to cost pressures.

In recent weeks major firms such as Unilever and Nestle have all announced price increases as they seek to recover rising operating costs.

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Meanwhile several large brewers including Heineken, Cobra and Carlsberg have warned of the price of beer rising this year as brewing costs have soared.

Jacqui Baker, partner and head of retail at consultancy RSM UK, warned: “This all lands ahead of a pinch point as retailers will face increased costs from 1 April with average hourly rates and national insurance both increasing, at a time when the remaining Covid support measures come to an end.

“The next few months will undoubtably be tough for UK retailers, so it will be interesting to see if the Government will step in and announce new measures to ease the cost of living crisis for consumers and introduce urgent business rates reform in next month’s Spring Budget.

“This would allow confidence to return; give retailers the chance to recover; and prevent further distress across the sector after a slow start to the year post-Omicron.”

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