Why Britain may have cause to celebrate retail sector's woes

Analysts at Jefferies don't expect to see much festive cheer from forthcoming rush of trading statements

The City is awaiting retailers' updates on how much consumers like these have spent (PA)

If the analysts at investment bank Jefferies are right, there won’t be much joy to be found amid the forthcoming rush of retail trading statements.

It isn’t hard to see why its preview bears the headline “No Festive Cheer expected”: the consumer has been under strain.

Inflation is riding high and wages are failing to keep up. Meanwhile, a pall of uncertainty hangs over the country thanks to Brexit. It appears that a growing number of people are starting to realise that they may have been sold a pup by the latter's increasingly shrill band of political and media supporters.

While there will still be some winners emerging from planet retail over the coming weeks, particularly those with healthy online businesses, all this should hit the sector's overall performance. One would expect the losers to be in the ascendent. That's all the more so because, as Jefferies notes, last year’s Christmas trading was good, so the comparatives are tough. Although price inflation will assist retailers with their numbers, they’ll still have to run quite fast just to stand still.

But what if Jefferies has got it wrong? What if all those glossy Christmas ads that retailers spent millions of pounds on producing, and broadcasting, did the trick and when the dust has settled in a few weeks time we’re all saying “wow”.

Something will have had to plug the gap between what consumers had in their wallets and what they spent. That something is borrowing.

If retailers are cock-a-hoop their festive frivolity won’t be shared when it comes to the likes of the Bank of England, the Financial Conduct Authority, and debt charities, all of which will share responsibility for dealing with the resulting hangover.

It is true that the growth in consumer borrowing did start to slow in the second half of last year, but it was still expanding at a fair clip. Growth remained at just under 10 per cent for much of the second half of 2017.

If mortgages are included, the debt mountain Britons are sitting on now amounts to more than £1,600bn.

The Bank was sufficiently concerned about this to fire a shot across lenders’ bows in September, warning them that they were stoking up problems with their approach, and exposing themselves to potentially huge losses. There were some signs that this was headed and that banks planned to reign in lending via cards, overdrafts and personal loans. But to what extent remains to be seen.

The retail sector may not like to hear it, but for the long term health of UK plc, a cooling of the consumer’s ardour resulting in a more conservative approach towards spending would be a thoroughly good thing. The British public's borrowing fuelled spending habits isn't sustainable long term. Some temperance is long overdue and steps may have to be taken to force the issue if it doesn't heed the warnings.