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Retail sales spike in April as COVID restrictions weaken


The UK retail sector has recently seen a spike in sales of 9.2% in April, the BBC reports.


Using data from the ONS, the state media publisher stated that sales of clothing soared by around 70% in March as eager consumers with lockdown savings splashed their cash.


Because of this, stores within the retail industry have likely breathed a breath of fresh air as they saw a large influx of demand to recoup their losses during the lockdown.


This is especially true for stores that rely on physical spaces rather than online ones as certain providers of retail who have no online presence, such as Primark, have likely seen a huge cyclical loss of demand as consumers flocked to brands with online presence such as Asos, who, during the pandemic, have seen their profits triple.


This means that many retailers have seen limited cash flow during the pandemic as the lack of customers meant that they were receiving no revenue and income as a result of the lockdown.


Hence, now that the restrictions have been relaxed, these retail providers can begin to flourish once again as pent up demand from the pandemic will likely fuel their bounceback.


This is because record savings combined with changing tastes and fashions favoured towards purchasing clothing, as individuals now need clothes to go out with, now mean that retailers will see a very promising boom period in the coming months as demand for their services has drastically risen.


This will likely allow the majority of street clothing retailers to recoup some of their losses from the lockdown, will it be enough for them to make an overall profit? Only time will tell.


Nevertheless, this boom period for retailers will likely result in positive effects for local regions and the entire economy as the increase in confidence in retail providers, due to the rising revenue and profits, will signal them to increase their factors of production.


Hence, due to the price mechanism, retail providers will be incentivised to employ more workers to increase output.


However, due to the majority of Furlough claims coming from low skilled industries such as hospitality and retail, the likely effect of the price mechanism is not a reduction in the unemployment rate but a reduction in the number of workers on Furlough as providers of retail bring individuals back to the workforce.


This is still a massive benefit as because of the Furlough Scheme, and other Keynesian measures, the UK government has been forced to overspend, resulting in a budget deficit and a total debt of £2.4 trillion.


This means that reducing the number of workers on Furlough will help ease this record borrowing as the government will be able to allocate more resources towards paying the COVID-19 debt back rather than maintaining the incomes of individuals who have returned back to work.

This will help minimise the opportunity cost associated with debt in the long term as in future, future generations will be likely forced to bear the cost of COVID through increased tax rates, such as the forecasted increase in corporation tax in 2023.


Hence, the sooner we can pay back the debt, the fewer future economic agents will suffer and the faster the UK economy can get back on track to balance the budget deficit, which has been a government objective for the past years as illustrated by austerity measures.


Once this is achieved, the UK economy will be on track to being fully prepared for any upcoming recessions as the balanced budget may become a surplus, meaning excess cash can be saved for future recessions in an effort to mitigate government borrowing.

 

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Written by Hubert Kucharski

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