The boss of Debenhams has warned that the government’s plans for a further round of deep spending cuts are weighing on consumer confidence despite the apparent health of the economy.
Michael Sharp, the retailer’s chief executive, said that although customers are starting to feel better off they are cautious about spending because of the government’s gloomy tone and its decision to stick with plans for £12bn of welfare cuts.
Announcing the department store group’s recent trading figures, he said: “When I sit down and talk to customers, they recognise that energy is cheaper and it’s cheaper to fill the car and their weekly budget for food is going further, which is great bearing in mind that not long ago there was 5% inflation [for food].
“The government has done quite a good job of positioning itself on the need for further austerity. Everyone is very aware of the £12bn cuts that are talked about. They see the positive [economic] indicators but ... they pick up messages that say things are going to remain tough for a while, and that influences their feelings about their own financial situation.”
Some economists, including the former Bank of England rate setter David Blanchflower, have said the government’s insistence on sticking to its manifesto pledge for £12bn of cuts will damage economic confidence. Blanchflower has compared the effect to the slowdown that followed the chancellor’s warnings about the dire state of the economy early in the last government.
Frances O’Grady, general secretary of the TUC, said: “We can be pretty certain that cuts will damage consumer confidence and spending, especially the extreme cuts the government is planning to tax credits for working families with children. Similar cuts in the last parliament did so much damage that the economy only narrowly escaped a second recession. What the economy really needs is investment in skills, infrastructure and decent public services. This would support more of the well-paid and secure jobs that are desperately needed.”
May’s retail sales figures increased by just 0.2% despite annual wage growth picking up to 2.7% with inflation close to zero after a plunge in oil prices. Growth in the wider economy slowed to 0.3% in the first three months of the year.
Sharp said: “[Customers] are saying they are aware of the positive indicators but they are also aware of the messages coming from the government that there is still work to do and on that basis they remain cautious.”
Chancellor George Osborne said last week he was planning to press ahead with welfare cuts despite pressure from some Conservative colleagues to slow the pace and concern from bodies, including the OECD, about the impact on the working poor. The Labour leadership candidate Andy Burnham has accused the government of frightening people with the threat of cuts.
Debenhams, which has struggled amid fierce competition in fashion retailing, announced solid third-quarter trading figures. In the 15 weeks to 13 June, which included a period of unseasonal cold weather, sales at stores open a year or more were unchanged.
Sharp said the flat performace was because Debenhams brought its “new season spectacular” sale forward into the first half of the year. The company said it was on track to meet forecasts for annual profit of about £110m.
Retail analyst Nick Bubb said analysts had expected like-for-like sales to have fallen by 1% or 2%. “On the face of it, despite the ominous share price dip to about 90p [on Wednesday], they have managed things surprisingly well,” Bubb wrote in a note.
Sharp said Debenhams had weaned itself off a reliance on discounts that gave the impression that goods were almost permanently on sale. Having reduced the number of days when the company advertises a sale he now wants to reduce the number of items reduced and vary the discounts.
The company’s shares rose almost 1% to 91p in early trading.
