‘How can you have a recovery when people are getting poorer?’

‘How can you have a recovery when people are getting poorer?’

Yes, sales of outdoor furniture and plants at Homebase and B&Q have soared thanks to the heatwave but the chief executives on the high street still hold grave concerns about the health of Britain’s economy.

“It is not yet filtering through into people’s pockets,” Philips said.

“Our customers aren’t any wealthier today than they were a year ago. For most people, at the end of month, there is no money left in their pocket.”

Lord Wolfson, Next’s chief executive, was even more blunt. “We believe that talk of a full-blown recovery is premature,” he said.

The root of Philips’ and Lord Wolfson’s concern is that wage inflation in the UK continues to lag general inflation. That means real earnings are still falling for consumers.

“How can you have a recovery when people are getting poorer?” asked Lord Wolfson.

This topic has been a constant theme of Next’s results since the financial crisis began, with Lord Wolfson including a graph illustrating the gap between consumer price inflation and wage inflation in the retailer’s results.

This gap has been the source of his consistently downbeat assessments of the UK economy. If prices are rising more than wages, then consumers are highly unlikely to be able to buy more, the Next boss argues.

Given that this gap remains, Next concluded there is “nothing we can see in the wider economy or our recent trading that would lead us to alter our sales budgets for the autumn-winter season”.

Making similar noises was the John Lewis Partnership, which cautioned that any recovery would be a “long one”.

However, there could be light at the end of the tunnel.

In Next’s results Lord Wolfson made a striking declaration – the credit crisis is over.

For the first time since 2007, the Next boss stated, consumers have stopped reducing their unsecured borrowings on credit cards and store cards and have again started taking on credit so they can spend.

On the one hand, the renewed willingness of consumers to borrow to spend is concerning, given the bubble that was created prior to 2007, but, on the other, this has the potential to lead to the improvement in real earnings that would drive the sustained recovery to which Lord Wolfson refers.

The increase in credit has already helped retailers to enjoy a fruitful summer.

John Lewis was able to report a 5.1pc uptick in like-for-like sales, while Waitrose grew 6.9pc and Argos 2.3pc in the past six months. Next, despite Lord Wolfson’s caution, grew 2.2pc.

Industry-wide data confirm that this improvement has not been isolated to a handful of leading retailers.

The British Retail Consortium said that retail sales in July were the best for seven years, while August sales rose 1.8pc on a like-for-like basis compared with August 2012.

What has been particularly striking is the surge in sales for DIY retailers, with Homebase enjoying its best summer for more than a decade.

Terry Duddy, the chief executive of Homebase’s parent company Home Retail Group, tried to play this performance down.

He said the increase in sales was the result of the “feelgood factor” of a good summer and that consumers “aren’t better off”. But, nonetheless, the willingness of shoppers to splash out on the back of this suggests confidence has improved.

“The good thing about where consumers are right now is that they’re not expecting it to get any worse and have found ways of coping with it,” Duddy added.

Although this summer may prove a one-off – in terms of the weather and the boost to the high street – it could also have a lasting impact on the health of consumers.

Firstly, as pointed out by Associated British Foods on Monday, the warm weather could slow food inflation because it will allow farmers to press ahead with growing their crops.

The past few years’ volatile weather conditions – such as the prolonged periods of rain in the UK – have caused spikes in the price of commodities such as wheat.

An end to the sharp rise in food prices would be a help to consumers, and close the gap in Lord Wolfson’s graph.

Secondly, the summer has provided signs that the housing market is spluttering into life, with mortgage lending and house prices growing on the back of the Government’s Help to Buy programme.

“The closer you are to new-build construction, the more positive the story is,” said Ian Cheshire, chief executive of B&Q-owner Kingfisher.

The housing market is pivotal to Kingfisher, given how much new homeowners spend on trying to improve their property.

But a rise in house prices is welcome for most retailers in the short-term because it instills confidence.

In the longer term, surging house prices could cause more mixed results for the high street.

Lord Wolfson warned that house price growth would be “as dangerous as any other type of inflation” if it is not accompanied by a rise in housing transactions and housebuilding.

However, if the pick-up in the housing market does lead to an increase in transactions and construction, then retailers such as B&Q, Homebase and the homeware department at Next are in line for a major financial boost.

So, while retailers may consider Mr Osborne’s comments to be a little premature, there is no doubt that their tone is markedly different to the start of the year.

In January, as HMV, Jessops and Blockbuster called in administrators within the space of a few days, the talk in the industry was about who was next to collapse.

This week, the question facing those in charge of Britain’s shops has been whether the country’s economy is recovering.

Even if some of them are playing it down, surely that is progress.

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