Cash Piggy

In the process of digging up old articles from the Economist, I stumbled across “The storm to come” - authored by Anatole Kaletsky and published in the November issue of 2007. The slowdown had just begun, and it appears the aftermath of the storm had been underestimated. Quite understandably so, since it was a period of blossoms and rich harvest. Unemployment levels were low and the prices were still stable. The forecast carried no severity and for people, it just meant a temporary dip in GDP growth. They had no reason to check their expenditure or save up for the 'rainy' day. In short, the prosperity experienced since 1997 had given rise to complacency. Sure enough, a year later the slump pulled the rug of financial security from under their feet. The gravity of the slowdown reflected in the 0% growth in GDP in the second quarter of 2008.

The first month of 2009 brought some relief for growth-starved UK. Retail sales in food saw a growth spurt, which many believe is a result of the heavy discounts offered to shoppers. Data showed an increase of 5.1% as compared to the previous quarter and a growth of 1.1% vis-a-vis the same time last year. It is heartening to note that the joy is being shared equally by the consumer as well as the retailer. However, the British Retail Consortium has warned against renewed hope before the spurt consolidates to a steady growth curve. This is owed to the “strong promotional activity” in December 2008, as quoted by KPMG's head of retail Helen Dickinson, which carried on till January this year. For people who were impulsive in extrapolating these promising figures, this is not good news at all. At least, not until the next few months prove that the growth is not confined to January alone.

The economic slump is expected to continue for another year at least. Ironically, this global phenomenon isn't exactly global. Countries like China and India are expected to see positive growth, although not as high as the last few years. In the UK, when the leak could've been plugged, the labor party had no measures in place to raise taxes. Now that the economy has weakened further, any attempt to redeem it is being viewed as a move of desperation. It is evident from the results that this observation isn't far from the truth.

In a consumer-driven market, people are truly spoilt for choice. Are they, really? Taking today’s feeble economy into account, consumers are left with fewer options to bargain with or sift through to make a choice relevant to their needs. Going a step further in shattering erstwhile ‘choice’ notions, increasing commodity prices and shrinking household budgets have forced consumers to settle with the ‘lowest priced’ product. Spurred by this drastic change in customer preferences, big brands have fallen to the lure of discounting strategies. With the price wars intensifying at the lower rungs, it is expected that the ensuing benefits will be passed on to the customer. A bright side to the crisis, the drop in food prices recently reflects this positive transformation. One hopes that this change is contagious, bringing about a deflation in prices of other essential commodities and contributing to the succour that Brits badly need.