British consumers tighten belts, force shops to shut

28th June 2011, Comments 0 comments

Britain's consumers are cutting back amid weak economic recovery, official data showed on Tuesday, forcing many retailers such as chocolatier Thorntons to shut shops in the face of melting demand.

Britain's economy expanded by only a modest 0.5 percent in the first quarter of 2011, the Office for National Statistics (ONS) said in a statement, leaving economic activity broadly flat over the past six months.

The final estimate for gross domestic product (GDP) between January and March, and which compared with the fourth quarter of 2010, was unrevised from two earlier forecasts.

Alongside the data, the ONS added that households' disposable income dropped 0.8 percent, falling for a second consecutive quarter and forcing many consumers to eat into their savings to maintain their lifestyles.

And the household savings ratio -- the percentage of disposable income which is saved -- fell to 4.6 percent in the first quarter, from 5.1 percent in the previous three months.

"Today's data offer further reasons to believe that 2011 is likely to be a tough year in the UK economy's rebalancing as consumers retrench and overall growth remains much weaker than pre-recession," said economist Charles Davis at the Centre for Economics and Business Research

"It is the continued squeeze on household incomes and consequent weakness in spending that means the Bank of England is likely to hold off from raising interest rates until the first quarter of 2012."

British interest rates have stood at a record-low 0.50 percent since March 2009, meaning that while it is cheap to borrow money, savers are earning only very small amounts of interest from their investments.

High inflation is meanwhile reducing the value of any savings and coupled with deep government spending cuts and tax hikes is undercutting Britain's recovery from a record-length recession that ended in late 2009.

Chocolates retailer Thorntons said on Tuesday that it planned to close up to 180 of its shops over the next three years owing to weak consumer spending in Britain.

The group, unveiling a major strategy review, said it would withdraw from at least 120 outlets by 2014 as their leases expire and consider the future of an additional 60 shops over the same period. Potentially 1,125 jobs are at risk.

Elsewhere on the high street, media reports suggest that store chain TJ Hughes appears set to enter administration -- the process whereby a troubled company calls upon independent financial help in a bid to remain operational.

In recent days, three well-known retailers -- upmarket furniture chain Habitat, kitchen specialist Moben and fashion group Jane Norman -- have all collapsed into administration.

At the same time, other badly-hit groups have sought to restructure to try and survive the consumer spending squeeze.

Floor coverings retailer Carpetright reported a 70-percent slide in full-year profits on Tuesday and warned it would close more stores to weather the downturn.

Other recent restructurings were announced by entertainment group HMV, baby products specialist Mothercare and sports retailer JJB.

The electronics sector has also been rocked, with Kesa Electricals looking at selling its loss-making British retail arm Comet.

"The retail sector had it good for longer than any of us expected but at some point there were bound to feel the pinch. Now they have," BGC Partners analyst Howard Wheeldon told AFP.

"My guess is that this is only a small start in terms of bad news that lies ahead in retail."

© 2011 AFP

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