Retail sales total might see tasteful but they dont paint a loyal picture

By Damian Reece, Head of Business 645AM GMT twenty-six March 2010

But, usually as you should provide the Treasury"s assumptions on expansion with some-more than a splash of salt, you should hoop the ultimate sell sales figureswith impassioned caring too.

February sales crop up to have enjoyed an considerable month, bouncing 2.1pc on Jan compared to a foresee climb of usually 0.8pc. As shortly as we could dig ourselves out of the snowbound homes we were down the high travel flashing the cash, the numbers appear to suggest. I don"t know about you but that positively wasn"t my experience. So what"s going on? The Feb some-more aged is conflicting what was an intensely bad month at the proceed of the year and, in fact, that really diseased opening in Jan usually got a total lot worse since the numbers have right away been revised downwards.

Alistair Darling to miss UK borrowing aim after jot down Jul necessity as taxation take tumbles Like Mr Micawber, Britain finds itself in a debtors prison Independent Scotland with oil carry out would be 20 billion in debt, says Treasury Markets braced for ancestral 200bn deficit Just blueprint out the track ahead, Mr Darling, that will be frightful enough Inflation is the greatest risk to the British economy

As Vicky Redwood at Capital Economics forked out, even with a 2.1pc enlarge on January, the tangible turn of sales in Feb was still next that seen in all of the second half of last year. Even if you magnify the Feb sales behind twelve months, the annual expansion of 3.4pc is flattered by an unusually diseased Feb 2009 that was itself strike by snow. So the design is far from that of a consumer zone progressively convalescent the confidence. Quite the conflicting in fact.

That is a be concerned for the economy since the difficult times are about to return. The taxation year about to proceed will vigilance the commencement of one of the greatest mercantile squeezes in a era or more.

The Chancellor, as we know, is perplexing to check the unavoidable and will keep the spending daub utilizing in 2010-11 but taxes are starting to climb right away with some-more to come in 2011 and beyond. Public spending cuts will have to proceed towards the finish of 2010 or early 2011 and they are going to be painful.

As we"ve seen, consumers are nowhere nearby as volatile as the central total indicate and there"s no reason to think that will urge once they see the cuts entrance through. And what cuts they"re going to be.

Everyone associates low and extreme cuts with the early Thatcher years when open output appearance at 48.1pc of GDP - the same as this stirring mercantile year. But, in 4 years, the Conservatives managed to cut spending to 43.6pc of GDP compared to the aim that the Chancellor set himself on Wednesday of slicing it to 42.4pc. So, not usually will the great British high travel (the economy"s engine room during the last boom) have to say with higher VAT and personal taxes but it will additionally face the plea of contending with supervision spending cuts of Thatcherite proportions and more.

With zero in the Budget patently to kindle exports or investment, yesterday"s sell sales outrider bad headlines for the economy, not great news.

Next contingency design a leaner year forward

I"ve remarkable prior to that 2009 will infer to have been an additional burble year interjection to the lax mercantile and monetary process we"ve all enjoyed and formula from Next infer that. The tradesman delivered the initial certain like-for-like sales after 4 years of disastrous opening in the twelve months to the finish of Jan 2010.

At the proceed of the year, as the monetary predicament was construction to a crescendo, Simon Wolfson, the arch executive, had an inner foresee of 370m in pre-tax increase contra analysts" expectations of 360m. Yesterday he suggested increase of 505.3m. Part of that opening is down to improved ranges and revitalising the code but it"s additionally down to the 2008-09 retrogression not attack consumer spending as most as expected. Employment remained comparatively robust, state benefits increasing and taxation cuts and descending domicile bills meant disposable income rose.

These conditions won"t hold, however. Even though seductiveness rates will stay low, consumers will still have to understanding with the cost of repaying the necessity taxation rises and unemployment. But a little retailers will be improved off than others.

Next has already remodelled itself for a "no growth" 2010 and throwing off 331m in money equates to it"s in a on all sides to keep shareholders happy even if the tip line is flat. Far from utilizing the money to buy sales growth, it is rebuilt to continue prosaic tip line sales (equal to a 2pc tumble in like-for-like sales) and revoke costs. This could broach a domain benefit of, say, 1pc that translates to a 7pc climb in increase and a 5pc boost in gain per share interjection to that money raise being spent, in part, on shopping behind and cancelling shares.

Here"s one approach to lessen taxation rises

The Budget once again highlighted the discuss about how the Chancellor cuts his necessity by half by 2014 as promised. So far taxation rises and "efficiency gains" are his lucky process with genuine cuts usually entrance in after this mercantile year.

But commercial operation leaders such as Wolfson are transparent the most appropriate march of movement for the economy as a total would be to do it by capability gains progressing services but with fewer people.

There are still 400,000 pursuit vacancies in the UK to assistance catch these pursuit waste and such a tactic would lessen taxation rises that strike the consumer hardest.

damian.reece@telegraph.co.uk