Prices 'will fall as recession ends': Study forecasts cheaper consumer goods

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The Independent Online
THE price of consumer goods will fall as Britain emerges from recession, with stores following United States retailers by piling goods high and pricing low, a report published yesterday predicts.

The study by McKinsey, the management consultancy, investigated why the prices of electrical and DIY equipment, clothing, fast food, cosmetics and toys were much lower in the US than in Britain.

Comparing London with Chicago, it found that a Burger King whopper without cheese cost pounds 1.99 in England and the equivalent of pounds 1.30 in the US. A pound of chicken breast fillets cost pounds 3.36 here but 93p in Chicago. Revlon liquid eyeliner cost pounds 9.50 in England but pounds 3.85 in the US.

It found that, on average, the price of some clothing was double. A woman's designer tartan jacket was pounds 239 compared with pounds 127.36; an acrylic pullover pounds 25, compared with pounds 13.40.

Comparison of 268 products revealed the British shopper paid, on average, 30 per cent more than the US consumer, although the difference was calculated at dollars 1.60 to the pound and would now be nearer 22 per cent.

There are four main reasons for the price differences, the consultants say - tax, property costs, productivity and trade prices. Britain's 17.5 per cent VAT on most goods is more than double the 7.25 per cent sales tax in the Chicago area and four times the US average of 4.5 per cent.

The UK also has a scarcity of space and historically inflexible rent agreements, the report adds. In Cardiff, typical rents are pounds 100 per sqft; in a shopping centre in Charlotte, North Carolina, rents are pounds 16.50 to pounds 33.50.

Although the UK pays more per hour to its retail staff - pounds 5.12 compared with pounds 4.35 - UK employees' average annual sales are 4.3 per cent lower, at pounds 61,708 per head.

The report highlights the emergence in the UK of discount stores and concludes UK retailers will have to slash prices to satisfy shoppers who have become more cynical.