AS ECONOMICS Paper 2 The National Economy in a Global Context. EXAMINABLE QUESTIONS. DOWNLOAD FOR COMPREHENSIVE REVISION.

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THE UK RETAIL INDUSTRY Extract A: UK retail sales, percentage change on same month a year earlier, January 2016–January 2019 Note: All retail sales include internet sales but exclude automotive f... uels. Source: Retail sales: February 2019, Office for National Statistics Extract B: The changing retail industry The retail industry continues to grow, yet there is clear evidence that the pattern of consumer spending is changing. In November 2013, when Black Friday* was first introduced to the UK, the average weekly value of all retail sales in the UK was £6 806.7 million, including internet sales of £827 million. However, by November 2018, internet sales accounted for 21.5% of all retail sales, with a value of £1 819.6 million. Clearly, high street retailers face difficult trading conditions. Falling demand and rising costs, due to rises in business rates, an increasing minimum wage and a falling exchange rate, have meant that some are unable to survive. According to the accountancy firm PWC, 2692 stores run by retailers with multiple outlets closed in the first half of 2018. Taking into account pubs, restaurants and other shops, a further 4042 premises became empty, increasing spare capacity in the economy. Inevitably, job losses will follow. The Office for National Statistics (ONS) said there were 93 000 fewer retail jobs in the three months to the end of September 2018 compared to a year earlier. In 2017, the British Retail Consortium warned there could be up to 900 000 fewer jobs over the next decade, which is a huge concern given the industry is the biggest employer in the private sector. 1 5 10 153 IB/M/Jun20/7135/2 Turn over ► In the November 2018 budget statement, the then Chancellor of the Exchequer, Philip Hammond, acknowledged the importance of the high street to communities and local economies. He announced ‘Our Plan for the High Street’, a range of supply-side policies designed to help town centres evolve. It includes reductions in business rates and an injection of £675 million into a ‘Future High Streets Fund’, to be used for local projects including improved transport infrastructure. 20 *Note: Black Friday is the day after the US holiday of Thanksgiving, regarded as the first day of the Christmas shopping season, on which retailers make many special offers. Source: News reports, February 2019 Extract C: Aggregate demand and economic activity So, is the changing retail industry and the decline in the high street bad news for the economy? Not necessarily. Many new jobs are being created, for example, in technology, distribution and delivery. Household consumption accounts for approximately 60% of aggregate demand so has a vital role to play in the economy, but consumption also includes spending on services, and nowadays services spending is gaining a greater share of consumers’ disposable income. Slower growth in consumption can also help to prevent too much inflationary pressure. Besides, what of the other components of aggregate demand? Unfortunately, investment is falling. The ONS estimated that business investment fell by 1.1% to £46.9 billion between the second and third quarters of 2018, the third consecutive quarter-on-quarter fall. The total trade deficit widened during 2018 to £32.3 billion; even though the value of exports increased, the increase in the value of imports was greater. However, Keynesian economists believe that when an economy slows the government should increase its spending to stimulate economic activity. UK Government finances have improved recently and, if required, the Chancellor now has more flexibility to increase government spending to give the economy a boost. [Show More]

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