What do polar atmospheric conditions, a Christian religious festival and the internet have in common? Answer: they’re all excuses made by the mainstream media to pretend that the British economy is prospering. The Beast from the East – the result of a collapsing polar vortex that pushed freezing air south into Europe – was supposedly the reason why people had put off their shopping in March. Not only that, but an early Easter brought about a shift from retail to leisure shopping. Beyond that, any residual fall in sales could be blamed on the evil online empire that is Amazon.com.
Were these excuses correct, the UK economy should have bounced back in April. Instead, sales continued to fall. As Will Martin at Business Insider reports:
“According to data from the British Retail Consortium’s widely respected monthly survey of shop sales, same-store sales dropped 4.2% in April compared to the year before, while on a total sales basis, that drop was 3.1% — a record fall since the beginning of the survey in 1995.
“The figures are somewhat skewed by the timing of Easter, which was earlier than normal in 2018, pushing spending forward. However, even without that setback, sales look very weak indeed.”
Even the cheerleaders at the BBC were forced to acknowledge that all is not well after discovering that the number of people visiting retail outlets has fallen dramatically:
“Footfall fell by 3.3% last month according to the British Retail Consortium (BRC) and Springboard. That was lower than the 6% decline in March, but was still an ‘unprecedented’ 4.8% decline over the two-month period.
“Diane Wehrle, of Springboard, said: ‘Not since the depths of recession in 2009 has footfall over March and April declined to such a degree. Even then the drop was less severe at minus 3.8%.’
“New data also showed that the town centre vacancy rate rose to 9.2%, with all areas of the UK, except Greater London, reporting an increase.”
While Amazon, Easter and snow may have had some impact, the large falls indicate that something structural has occurred. That “something” was reported here last month:
“Shifts in discretionary spending patterns begin a domino effect in which businesses that retail, import and manufacture discretionary goods and services find themselves under increasing pressure. To some extent, job cuts and shifts in work practices – like those implemented by the supermarkets earlier this year – can stave off the moment of truth. But unless discretionary spending increases, sooner or later – as in the case of Toys R Us – closure becomes inevitable.
“The real problems kick off, however, when the shift in spending patterns begins to affect non-discretionary spending. This is what the growth of foodbanks and homelessness is warning us of – they are like the canary in the mine, signalling imminent danger for the wider population. The more alarming recent indicators, though, are to be found in the sudden plunge in two key markets; housing and cars.
“These are not only an example of declining spending shifting from discretionary to (at least semi-) non-discretionary items; they also spell a collapse in the supply of currency in the economy. For most families, a house and a car are by far the most expensive items they will ever buy. More importantly, in very few cases are these two items ever paid for in cash. As such, they are two of the most important means whereby debt-based currency enters the economy. So, a sudden decline in the sales of both cars and houses signal an imminent monetary deflation that will inevitably lead to business failures and job losses.”
In part, the sudden drop in new borrowing – particularly for expensive items like houses and cars – can be explained by the “forward guidance” offered by the Bank of England following their decision to raise interest rates last November. With Christmas out of the way, far more people were concerned to pay off existing debt ahead of the anticipated rate hike in May while far fewer were prepared to take on new debt. As Jim Edwards at Business Insider reports:
“The amount of new credit issued in the UK went sharply negative in Q1 2018, dipping to a level it has not seen in six years.
“Consumers also abruptly increased their repayments of loans at the highest rate since records began in 2013, according to Pantheon Macroeconomics analyst Samuel Tombs.
“Together, the two spikes — one down, one upward — send a worrying signal that British consumers are afraid of what’s ahead. GDP growth was just 0.1% quarter-on-quarter in Q1, and this is in part why the Bank of England did not raise interest rates at its scheduled announcement today.”
While the Business Insider editorial line is that Britain’s economic malaise is a result of the vote to leave the EU, the Bank of England Monetary Policy Committee’s own view is that the economy is sound and that the downturn in the first quarter is merely a dip. Both views are, however, largely a product of bubble thinking among the affluent classes from within the Oxford-Cambridge-London triangle. More than eighty percent of the jobs created since 2008 are in this region (the remainder largely shared between metropolitan enclaves within the large UK cities). Meanwhile, the remainder of the UK has gone backward as wages have remained stubbornly below an official inflation rate that few outside the government trust.
“The new research has found that 480,000 16- to 24-year-olds are missing out on both benefits and advice – no less than 60 per cent of the official total of young jobless.
“Strikingly, many of them have good job prospects, boasting impressive GCSE qualifications and having continued with their education beyond 16.
“But they refuse to go to job centres because they are ‘unhelpful’ or they ‘fear being treated badly’ – due to the threat of sanctions – while others lack the necessary documents.”
This goes some way to explaining why wages, growth and inflation have remained low despite an official unemployment rate similar to rates seen in the 1970s. This missing half-a-million young unemployed people would amount to around 25 percent of the unemployed if added to the official figure. Moreover, what has happened in the youngest age group may well have occurred among older workers too. Although research into hidden unemployment has yet to be done for the over 55’s, the work of organisations like the Centre for Ageing Better suggest that this group may also contained large numbers of economically inactive people not included in the official data:
“While overall numbers of workers aged over 50 have increased in the last decade – due in part to the baby boomers entering this age cohort and a greater number of women in work – there is still a sharp decline in economic participation rates after the age of 55, and a corresponding reduction in tax income.”
The decline in tax income from this group may be the result of people opting to eke out a living on private pensions taken prior to retirement age under rules brought in by the Tory-LibDem coalition government. Those older workers who had finished paying off a mortgage prior to 2008 have been able to make do with a lower income – such as that from a reasonably well-funded private pension – than middle-aged mortgage payers and people in rented accommodation. Where the alternatives are either exploitative low-paid work or an increasingly punitive benefits system, simply dropping out of the workforce may be the better option. If this is the case, then we might add a further half-a-million over 55s to the official unemployment rate.
This is, of course, catastrophic for the wider economy, since it is an unanticipated manifestation of the “pensions crisis” that was expected as the baby-boomer generation retired. The assumption had been that the younger generations would face a rising tax bill as they were required to support a growing number of retired and very-elderly retired people.
While this has been blamed on older people by the politicians, the reality is that the pensions system – public and private – always was a confidence trick. Today’s payees provide the benefits to today’s beneficiaries in the hope that tomorrow’s payees will provide their benefits. That worked when the real economy was expanding and few people lived beyond 70 years. At a time when the only economic expansion is in asset bubbles and baby boomers are refusing to die quickly enough, there are simply not enough people paying in to cover the benefits going out. Add to that a decade of near zero percent interest rates and it is little wonder that employer after employer and fund after fund are finding themselves in dispute as they desperately try to restructure future benefits to match anticipated future economic conditions.
What nobody saw coming was that middle aged workers would not only have to fund the baby-boomers, but that they would also have to provide free board and lodging to a large swathe of the Millennials too. This, however, is the only way in which large numbers of younger workers can avoid both work and benefits; and it is borne out by the rising average age at which people are still living with their parents. This, moreover, is on top of the expectation that younger adults will finance childcare so that they can remain in employment.
What this points to is a growing squeeze on discretionary spending from which there may be no escape. Rising prices – especially of essential items like rent, food and fuel – are themselves recessionary. However, as increasing numbers of middle aged workers find themselves supporting old and young alike – either directly or via pension payments and taxes/government borrowing – so the scope for consumption shrinks. The heady days of early retirement on final salary pensions seen in the (debt-based) 1990s boom years are well and truly over. Every generation of workers from here on can look forward to getting less for more. That means that companies and banks whose business models are based on a growing workforce taking out ever increasing volumes of debt in order to finance ever more copious consumption are going to go out of business in ever larger numbers as the depression gathers pace.
As you made it to the end…
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