The UK energy crisis will not steal Christmas

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With energy prices rising, few homes will be fully lit during the Christmas season. Don’t expect glowing reindeer on lawns or Santa Clauses on rooftops. Across the country, these holiday features will likely be missing this year.

But don’t think that Christmas trees are completely stripped of their fairy lights. Despite the dire predictions, Brits will be looking to make the most of the bank holidays and bring some much-needed comfort to retail and hospitality.

On Friday, regulator Ofgem raised the price cap on household energy bills to a record £3,549 ($4,167), meaning households will pay nearly triple to heat their homes this winter. In addition, the cost of other basic necessities is rising – food prices were 11.6% higher in the four weeks ended August 7, according to Kantar – and inflation is outpacing wage growth. Homeowners are also having to deal with rising mortgage costs for the first time in many years.

The Asda Income Tracker, which measures how much money households have left after tax and after paying for essentials like groceries, transport, energy and housing, fell by £40.21 a week in July compared to the same period last year.

This slump is weighing on both consumer and business confidence. Retail executives expect this fall to be extremely difficult as higher energy bills materialise. Many people have also spent this summer lavishly, either holidaying abroad or making the most of the UK heatwave. Now those credit card bills land on doormats.

But there are several reasons the holiday shopping season might not be as bad as feared.

The last two days of celebration have been interrupted by Covid outbreaks. Despite avoiding a lockdown in 2021, the omicron variant has wreaked havoc on plans to visit family and friends and eat out. Of course, much still depends on whether there will be a further increase in cases over the winter. But assuming Covid is under control there will likely be an element of ‘revenge Christmas’ this year.

The British have yet to make up some lost celebrations. Parties and weddings are likely to continue into the winter months, keeping demand for chic attire.

Despite some signs of a slowdown, the labor market remains strong. And even after the holidays, some higher earners still have a savings backlog to cushion the cost of living crisis. Others may turn to credit cards to keep their spending going.

Consumers also tend to protect Christmas. When life is a struggle, people try to make the holidays a short respite from their woes.

In addition, there is another decisive factor: the World Cup will take place for the first time in November and December. Depending on the national team’s performance, this could inspire some celebratory football meetings. (Major sporting events are traditionally good for TV sales, but with big-ticket items often being the first to scale back in times of economic stress, retailers like Currys Plc and AO World Plc may not be able to expect such a boost.)

That doesn’t mean Brits won’t change their ways. Many are already cutting back and only buying when they need to. For example, this back-to-school season, more families have waited until just before the start of the school year to buy uniforms, backpacks, and binders, rather than stocking up ahead of time. Expect a similar pattern when it comes to Christmas, which means late volatile trading for retailers.

While many people get together with friends and family over the holidays, they may cut back on their gifts. When households feeling the need have to prioritize gifts for children, that means fewer gifts for adults. Frivolous articles are also published, as they were in 2008 and 2009 when the world was gripped by the global financial crisis. It doesn’t help that many products, from clothing to tree ornaments, are becoming more expensive. Forget the Christmas sweater or the chew toy for your dog.

When Brits buy something, they’re likely to bargain down and shop around at Christmas items like wrapping paper and groceries. The UK branches of German discounters Aldi and Lidl should benefit from this shift. Of the big four UK supermarkets, Tesco Plc is currently the most dynamic with its promise to match Aldi’s prices on hundreds of items. If it keeps that up through the fall, it might as well have a good Christmas.

When it comes to non-food products, trends bode well for low-cost home furnishings business Dunelm Group Plc and Associated British Foods Plc’s Primark.

But the key swing factor for all retailers and restaurants will be whether the government steps in with more support for families struggling with energy bills. Brits invested lavishly all summer, partly because of the weather but also because they expected another round of relief.

If no more support comes and employers start announcing layoffs, things could get a lot worse.

January and February are always lean months for chain stores and hospitality. With the next energy price cap set to be announced in January while credit card bills arrive in December, early 2023 could be particularly grim.

For now, though, it looks like those Christmas tree lights are still twinkling.

More from the Bloomberg Opinion:

• Europe cannot go into winter thinking all is lost: Maria Tadeo

• Banks should be as worried about inflation as they are about jobs: Paul J. Davies

• Can Liz Truss exceed low expectations? Thatcher Did: Therese Raphael

This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

Andrea Felsted is a columnist for Bloomberg Opinion covering consumer goods and retail. She was previously a reporter for the Financial Times.

More stories like this are available on bloomberg.com/opinion

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