British consumers cut back, force shops to shut

Britain’s consumers are cutting back on their spending amid a weak economic recovery, official data showed yesterday, forcing major retailers such as chocolate firm Thorntons to shut shops.

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

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

Alongside the data, the ONS said that households’ disposable income fell for a second consecutive quarter, forcing consumers to eat into their savings to maintain their lifestyles.

“The ‘new news’ from the Office for National Statistics data is that real disposable incomes fell by an estimated 0.8 per cent in the first quarter, following a 0.9 per cent decline in the fourth quarter of 2010,” said Charles Davis, an economist at the Centre for Economics and Business Research.

“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.

“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 per cent 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 yesterday 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.

“Although we see the prospect of weakness in high street footfall and consumer sentiment continuing, I am confident that this strategy is right,” Thorntons chief executive Jonathan Hart said in a statement.

“We continue to adapt in order to meet the changing needs of our customers, while at the same time retaining our current presence on the High Street through our own stores and our franchise business,” he added.

The announcement made by Thorntons’comes just a few days after the upmarket Habitat furniture chain was placed in administration to save it from bankruptcy.

Also yesterday, floor coverings retailer Carpetright reported a 70 per cent slide in full-year profits and warned it would close more stores to weather the consumer downturn, while fashion group Jane Norman said it was cutting 400 jobs.

Britain’s electronics sector has also been badly affected, with Kesa Electricals looking at selling its loss-making British retail arm Comet.