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Interest Rate Rise Hits Retail Hard

04/09/06

Retail research group SPSL’s Retail Traffic Index ™ (RTI™) for August, released today, shows that the Bank of England’s interest rate rise from 4.5% to 4.75% on August 3rd has hit retail shopping trips hard. August is normally a buoyant month due to good weather and school holidays, however not this year. SPSL had predicted a 0.6% rise in month on month shopper numbers. In actuality the month was down 1.3% on July 2006 and the RTI was down 3% year on year.

Commenting on the impact of the interest rate rise, Dr. Tim Denison, Director of Knowledge Management at SPSL said; “This first tightening of policy by MPC for two years means many will be facing increased mortgage payments and heavier overdraft and credit card debt. It comes at a time when the picture for retail was looking brighter and will be a body blow for retailers who’ve been fighting hard to maintain margins against ever rising energy and other costs and just as the minimum wage is set to rise in October.

“The increasing pattern of its impact on consumer confidence can be clearly seen in the week by week RTI figures for August; the week commencing 30th July got off to a healthy start with shopper numbers up 0.8% on last year, slightly better than our prediction. Then came the bank’s bombshell and the figures for week two commencing 6th August were down 2.3% on last year, week three commencing 13th August were down 4.5% on last year and week 4 commencing 20th August were down 6.2% on last year.

“The good start to August was partially due to the end of sales and last minute bargain hunting at the start of the holidays. However, the interest rate rise announcement meant that as the month went on and people re-assessed their financial positions and letters started arriving from building societies and banks, the gap widened. Sadly for retailers, there was no sign that the back to school promotions had had any significant impact on customer numbers. Overall the month ended 3% down on August 2005.

“Looking at regional differences year on year, London’s RTI was up 1.8%. This is not necessarily as good as it seems, because shopper confidence in London was still badly affected last August by the terrorist attacks in July, but nevertheless it shows that London has recovered somewhat. However, the RTI was still 3.3% below August 2004 figures.

“All other regions saw various levels of decline on Aug 2005; the worst decline being in Northern England which was down 7.4% on last year. This is a sign that house price rises previously seen more in the South are now catching up with the rest of the country, although with the new interest rate rises the brakes may yet be applied.

“Unfortunately for retailers the outlook for September is not good either. SPSL is expecting a 4.2% drop year on year.”

Note

Retailers or analysts wishing to find out more about SPSL’s award-winning customer services should contact Dr Denison at SPSL on 01908 682700. Media enquiries should be directed to Theo Chalmers at Verve PR on 01908 275271.

The SPSL Retail Traffic Index uses systems for counting people and footfall along with customer tracking, pedestrian counting  and retail traffic counting to aid staff scheduling and improve your retail performance.