Retail sales figures for January will give the Treasury a fright. A fall of 8% was much larger than the more modest 3% expected by City economists and reveals how shoppers, when confronted by a third lockdown, were reluctant to keep calm and carry on.
There was a faint hope that after a disastrous Christmas period, and a year that ranked as the worst for consumer spending on record, we might see retailers start 2021 with a fresh set of wings. It was not to be.
While the slump in spending was not as great as during the first lockdown, any hopes of a milder drop in sales were snuffed out by the closure of all non-essential shops and the daily reports of rising infection levels and cases of Covid-19 that made it clear the lockdown would last for several months.
Another factor preying on the minds of consumers was government resistance to upgrading its financial support package. Calls to extend the uplift in universal credit beyond April, and likewise the furlough scheme, have been rebuffed so far.
Rishi Sunak is wedded to the idea that the best chancellor is one who makes clear they will adapt policies to match the course of the pandemic. What he has never seemed to realise is that a flexible approach can be viewed as procrastination and indecision.
Understandably, retailers and consumers would be reassured and have greater confidence if he offered a longer-term commitment.
The hope must be that next week, in the run-up to the budget on 3 March, Sunak agrees to go further and commit further funds to his broader rescue package.
According to the latest public finance figures, there is little excuse for him to hold back.
The Office for National Statistics estimates that borrowing over the 10 months from April 2020 to January 2021 was £270bn, about £70bn below the latest forecast from the Office for Budget Responsibility, the Treasury’s independent forecaster.
This calculation leaves out the likely cost of writing off billions of pounds of business loans made by the Treasury in the first months of the pandemic. The loan losses could add a further £30bn to the total. Yet the overall deficit will likely be well short of the much bigger annual drop that the OBR predicted.
The latest business surveys for February also provide some good news, with firms looking ahead to better times. A rise from 41.2 in January to 49.8 this month in the IHS Markit/Cips purchasing managers index shows industry planning to rebuild stocks and begin growing again. A figure in the index above 50 indicates expansion.
There were worrying signs from manufacturers, who said they were held back by delays to imports and exports at Britain’s ports. It was a clear message that without Brexit-related delays, the recovery could be so much stronger.
Still, with more room for manoeuvre, Sunak could overcome many of the barriers to a recovery if he would only underwrite those businesses most in trouble for as long as the pandemic forces the government to impose restrictions.
Confidence is the key to a recovery on the high street, as it is elsewhere in the economy. At the moment, Sunak is not going far enough to reassure those who are struggling that they will make it to the finish line.