Budgets for the past two or three years have tended to be dominated by speculation and anticipation of alterations in the rate of value added tax. This has led to a number of curious ups and downs in sales of items like durables. This year, however, all eyes are on the prospects for income tax reductions, and the major stores groups are already counting the extra money. Some very lofty figures for volume growth in sales — some as high as six or seven per cent have been bandied around, but it now appears that the budget is likely to be less reflationary than originally expected, although still good news for the UK's retailers who have not seen a sustained upturn in spending since 1972. Nonetheless the retailers themselves seem to be cautious on the prospects for the year. The recent annual statement from Woolworth's chairman demonstrated that if we are having a consumer boom Woolworth for one has not seen much of it. Government statistics would appear to dictate a cautious line as well. Christmas turned out, belatedly, to be good. January was poor with no discernible volume growth over the sales figures for the previous year. But February was good again, with volume sales at 106.5 as against 104.5 the previous year. But there may be signs that consumers are becoming more confident. The credit figures for January were higher than for some time, indicating that the spending public is expecting things to get better this year. The classic cyclical items such as electricals and white goods will undoubtedly do well in 1978. Merchandisers in the semi luxury and luxury areas that always benefit when disposable income goes up should also flourish. But the food retailers seem destined to find their margins squeezed on account of the price war that is raging in the High Street supermarkets. Furniture sales, where there must be a substantial pent up demand following several years of restraint, should also show a recovery. Unlike the last period when retail shares were showing, as a whole, a good premium to the rest of the stockmarket, major food retailers such as Sainsbury and Tesco now have price earnings ratios of less than 10 on an historic basis, while British Home Stores and Marks & Spencer have ratings of 15 and 18 respectively. Clearly the stockmarket is expecting some good 1978 results from the non‐food sector, but is still doubtful about the impact of the price war on the supermarket companies.
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