THE END of the summer feels too early to be thinking about Christmas, but retailers have little choice. The typical British household spends around a third more than usual in December, and stocking up for the most important trading weeks of the year usually begins around now. This year, however, rather than preparing for the coming rush, retailers are struggling to keep shelves full.
According to survey data from the Confederation of British Industry, a lobby group, retailers’ and manufacturers’ inventories have plunged in recent months (see chart). It has been asking members about stock levels for decades and has never recorded answers so low. In spring and early summer, shortages of construction materials and computer chips hampered builders and carmakers. In recent weeks the impact has become more visible on high streets. McDonald’s, a burger chain, stopped serving milkshakes. Wetherspoons, a chain of pubs, is short of some brands of beer. Nando’s, a chicken restaurant, temporarily closed around 50 branches because it cannot get the birds.
The main reason is straightforward. With pandemic restrictions almost entirely lifted and the economy reopened, demand has recovered faster than supply, leading to shortages and higher prices. Consumer-price inflation, which was running at under 1% annually at the start of the year, hit 2.1% in July. The Bank of England expects annual inflation to rise to around 4% over the coming months.
But that is not the whole story. Some of the squeeze is caused by problems outside Britain’s borders, for example the computer-chip shortage. And the pandemic is far from over: government estimates suggest that new infections are running at over 200,000 a week. Employers are having to do without both the infected and many of those who came near them. According to the most recent data available, in the week ending August 18th over 300,000 close contacts of people who tested positive were told to stay home.
The main additional factor, however, is Brexit. Britain’s transitional membership of the European Single Market and Customs Union ended on December 31st 2020. The end of the frictionless border with Britain’s main trading partner means further problems for supply-chain managers. Although the government has chosen to suspend most border checks until October, new rules on collecting value-added tax have convinced many smaller European businesses to sell less to Britain. Sanitary and phytosanitary rules, due to be imposed on imports this autumn, will make food supply chains more fragile. Employers in sectors such as food processing and hospitality, which relied heavily on European workers, say that many left the country last year. Some may not return.
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