'Austerity fatigue' pushes shoppers to seek 'affordable luxury'

"It was the Christmas when the puddings were laced with cognac, not brandy," says the Financial Times.

According to the newspaper, the mass of festive season retailer results we've seen in the past three weeks present "a clear picture… of British families, bored of austerity, starting to treat themselves a little". This in part reflected higher disposable income following the best year for wage rises since the recession at a time of persistently low inflation.

So, we have seen the likes of Fortnum & Mason reporting a 15 per cent surge over Christmas and a record trading day on 15 December. Department stores John Lewis, Debenhams and House of Fraser also did well, as did select fashion brands such as Ted Baker, which flourished despite the warm weather that was blamed for weak figures elsewhere.

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In the supermarket sector, Tesco and Morrisons both unexpectedly saw sales rise and Sainsbury's held firm. The FT notes that higher-end ranges in particular were a hit, with Morrisons selling 26 per cent more smoked salmon than a year earlier and Sainsbury's experiencing an 18 per cent rise in sales of its gourmet Taste the Difference brand.

In contrast, Asda, the most price-focused of the so-called "big four", is expected to have seen a decline of 3.5 per cent.

At the lower end of the price spectrum, growth slowed at Poundland and it has been forced to issue a profit warning. Discount sportswear retailer Sports Direct also had a poor Christmas, but its brand-focused peer JD Sports said it beat expectations by 10 per cent.

However, the figures do not suggest shoppers have lost regard for cost. Rather they sought "affordable luxury", with Waitrose, for example, pointing out that 40 per cent of sales over Christmas were on promotional items, double the previous year.

There is also evidence that consumers are increasing buying goods through online retailers, where they are likely to get more competitive offers, rather than on the high street, which saw flat sales despite an overall spending rise. These shifts are helping to ensure that strong downward pressure remains on prices.

Consumer spending up – but it won't help high street

11 January

British shoppers spent markedly more over the critical Christmas trading period to round off the second-best year for consumer spending since the financial crisis.

Data from transaction processing giant Visa Europe, reported by the Daily Telegraph, reveal overall spending rose 2.4 per cent in December compared to the same month in 2014. Over the year as a whole, Visa recorded a 2.3 per cent rise in spending, down slightly from 2015's 2.5 per cent and in line with the 2.2 per cent estimated by rival MasterCard.

But the increase in outlay is not alleviating the pressure on high street retailers, who are struggling amid a broader deflationary environment, intense competition from low-cost online platforms and, for clothing retailers in particular, unseasonably mild winter. Next last week reported "disappointing" festive season figures while Marks and Spencer's chief resigned after its latest clothing slump.

High street sales were actually marginally down over Christmas, said Visa, falling 0.1 per cent. In contrast, online sales rose 7.4 per cent year-on-year last month while elsewhere, more money was spent in hotels, restaurants, bars and the theatre.

The fact that spending is on the up is a reflection of improved conditions for consumers, who are benefitting from falling prices, rising wages and low unemployment. Research from accountants BDO, reported in The Guardian, concluded consumers are "enjoying their best start to the year since the financial crisis and are contributing to an upbeat business outlook".

Business positivity was also highlighted by Lloyds Bank, which noted that its latest survey showed employers in all regions taking on additional staff in December. A slight fall from November left its index reading at a still-impressive 55.5 (where a score of more than 50 equals expansion) and continued a run of three unbroken years of employment expansion.

The bullish sentiment comes despite a warning from Chancellor George Osborne last week that the British economy faces a "cocktail" of risks from a slowing global economy and renewed geopolitical tensions.