David Prosser: Retailers' day in the sun may be short-lived

Click to follow

Outlook Some better economic news at last, with the CBI's latest distributive trades survey yesterday painting the most optimistic picture of the retail sales outlook for more than two years. That's cheering because, with consumer spending accounting for two-thirds of GDP, a better performance from the nation's high streets is crucial if the UK really is going to finally make it out of recession in the final quarter of the year.

Still, let's not get too excited: there is every reason to fear that the pre-Christmas trading period may be a flash-in-the-pan. Above all, the temporary VAT reduction, from 17.5 to 15 per cent, finishes at the end of December.

Retailers will no doubt use the deadline to launch all sorts of promotions, providing a one-off fillip to sales. Come January, however, the hangover from the Christmas splurge is going to be truly awful. Launching new-year sales as the VAT rate climbs again will be bad enough. But by then, unemployment will be higher than it is now and the outlook on rising taxes and falling public spending will be even clearer. With many people having brought forward purchases to before Christmas, the first quarter of 2010 looks set to be bleak for retailers.

It's worth noting too that the CBI's survey includes the motor industry, which is benefiting from its own one-off boost in the form of scrappage. The Government scheme is scheduled to come to an end in February, putting the brakes on the recovery of the car sector.

We haven't yet seen real figures for October's retail sales, though August and September were both pretty disappointing. But assuming there has been a recovery over the past month, question marks remain over its sustainability.