Austerity Xmas

**Christmas is a poor excuse to pick someone’s pockets every 25th December. But when there is less money in people’s pockets to begin with, then even the pickpockets suffer. Consumers and high street retailers alike have been put under pressure by the low growth, high inflation economic environment in recent years.**

Families are still budgeting keenly and spending cautiously, despite the emergence of the economy from recession last quarter. This is why the many Scrooges among us anticipate that the UK will experience another austerity Christmas this year. Bah humbug.

What have been the main cost pressures on family finances? First, there has been significant food price inflation in recent months. According to the British Retail Consortium, annual food price inflation was 4 per cent in October, and this was the force behind the recent rise in CPI inflation to 2.8 per cent. Families are paying around £150 more on their annual food bill in 2012.

Secondly, a rise in fuel prices has increased the average annual cost of commuting for families by £215 a year. Taken together, it is not hard to see why families are having to cut back in other areas, especially Christmas expenditure.

But British consumers have not become more ‘modest’ in what they are buying – tablets are expected to be the best seller this year – only in how much they are buying and how they are buying it. Consumers are planning their expenditure more carefully. The traditional Christmas shop on the high-street is waning in favour of online shopping and the fact that consumers are targeting items like tablets and e-readers – which are chiefly supplied via the internet – also works to the favour of online retailers.

For retailers, therefore, it is very much a tale of two cities. Websites like Amazon and eBay are expecting a bumper Christmas. “Cyber Monday” on the 3rd December is poised to achieve record sales numbers for online retailers; a 21 per cent year-on-year increase is expected. In contrast, high-street retailers are expecting Christmas sales to be flat or possibly even worse this year.

In a sense, the shift towards online distribution was inevitable with a recession or not, but the economic situation does seem to have sped up the process. John Lewis, for example, now obtains a quarter of their trade from online shopping.

But perhaps more frugal Christmas expenditure is not all bad news. A good Christmas is not defined by the number of presents, but the quality of the company you keep. A Christmas spent all day indoors showing off new gadgets is not exactly the right way to go about it. No match, at least, for attending a Christmas service or having Christmas dinner at a local restaurant or pub.

If spending constraints make people consider the non-material aspects of Christmas then that is probably a good thing. Although it might make for a bad hangover.