UK engaged in 'fantasy economy', says retail chief

John Roberts says that when the base cost goes up for retailers, «you either give it up or you go broke.» Credit: News Scan

The UK is dealing with a 'fantasy country economy' where companies are criticized for raising prices but are facing pressure to raise wages for staff, says one of Britain's largest electrical retailers.

< p>John Roberts, founder and CEO of AO World, said it's «freaky» that retailers can cut prices back to where they were two years ago.

AO World has about 3,600 employees, and all of them are “better paid than they used to be,” Mr. Roberts said.

He added, “This should seep [to shelf prices].

Retailers face growing scrutiny of rising food prices. Unions accuse supermarkets of «grotesque speculation», which grocery store executives deny.

Consumer price inflation, including food spending, increased 8.7% in the year to May, according to the Office for National Statistics (ONS). Food prices jumped 18.3%.

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Mr Roberts said: “There is a sort of economic fantasy going on in the country that no one is allowed to experience hardship, nothing is allowed to rise [in price] . ], but everyone wants to make more money.

“The government has spent billions on Covid relief and this is showing up in inflation – the horror of the shock.”

He added that when the base cost rises for retailers: «You either pass it on or you go broke.»

Andrew Bailey, Governor of the Bank of England, said «unsustainable» wage increases were the reason for fueling inflation.

Mr Bailey is once again under pressure to tame inflation as data released Wednesday shows wages continue to rise. in the service sector, which is another sign that rising prices are becoming an integral part of the UK economy.

The Purchasing Managers' Index (PMI), a closely monitored survey by S&P Global, has shown that rising salaries are a «compulsive» cause of rising costs for companies as bosses have to pay more to hire and retain the staff they need. .

A survey conducted by the British Chamber of Commerce showed that 45% of companies plan to raise prices in the next three months until June.

More than two-thirds of the mentioned firms pay salaries, as it has the greatest pressure on their spending.

Shevon Haviland, CEO of BCC, said: «With inflationary pressures easing but concerns about wage costs still high, our study should give the government and the Bank of England pause to think about their next steps.»

“There is a delicate balance to be found here. Push interest rates too hard and there is a real danger that long-term prospects for economic growth and prosperity will be undermined.”

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The bank raised the base rate from 0.1% to 5%. from December 2021, with traders betting on a rate hike to 6.25% early next year.

Rising borrowing costs are also hitting public finances. On Wednesday, the Debt Management Authority raised £4bn by selling two-year securities at an interest rate of almost 5.7%, the highest cost of borrowing since 1999.

This highlights the scale of the problem facing UK debtors, with the cost of borrowing for the government being seen as the 'risk-free' rate on which loans to businesses and households are based.

Mr Robert's comments were made when AO World back in positive territory, posting a pre-tax profit of £7.6m in the year to April, compared to a loss of £10.5m a year earlier.

However, sales dropped sharply. 17% over the same period after the company cut costs by around £50m by cutting staff and reducing the range of products it sells.

Mr Roberts said households are also cutting back on non-essential appliances, as well as moving towards paying for energy-efficient home appliances to cut down on energy bills.

He said: “During previous downturns, people could buy a cheaper fridge freezer, but this is the first time we we are seeing a move towards energy efficient products.

“Consumers are investing more in products to save life cycle costs through energy efficiency.”

Sainsbury CEO Simon Roberts said this week that food inflation has been falling, but labor costs will prevent prices from falling back to previous levels.

He said: “Prices will not return to previous levels because the cost of food production is clearly higher than before. it was a year or two ago.”