Home > Data, Productivity > The Great Retail Shift

The Great Retail Shift

Good retail figures today from the ONS, with another decade high:

• Year-on-year estimates of the quantity bought in the retail industry continued to show growth for the 20th consecutive month. In November 2014, the quantity bought increased by 6.4% compared with November 2013. This was the highest year-on-year increase since May 2004 when it grew by 6.9%.

This is always my favourite series:

UK Retail, Internet Sales as Proportion of All Retail Excl Fuel.  Source: ONS MS6Y

UK Retail, Internet Sales as Proportion of All Retail Excl Fuel. Source: ONS MS6Y

There have been quite a number of papers over recent years (e.g. Cheshire et al, 2012) documenting how UK land use regulation has damaged retail productivity, for instance by restricting store size.  I wonder to what extent the shift to on-line shopping is both a response to – and ultimately a route around – those regulatory restrictions.  On a per capita basis, Amazon appears to have more warehouses in the UK than any other country; it would be fascinating to know how their productivity compares across countries.

Categories: Data, Productivity
  1. james in london
    December 22, 2014 at 08:55

    Quite a lot of UK consumer focused firms use this:
    A good news Xmas.

  2. james in london
    January 8, 2015 at 08:49

    Just posted the below on a comment at The Money Illusion, but probably will get lost in the trolls … more important for us over here.

    Very interesting for history of monetary policy are the minutes from the Court of the Bank of England engaging with the interest rate setters of its Monetary Policy Committee.


    Not read them all yet, but from the Emergency Meeting of 13th September 2007 to consider the bail out of Northern Rock is this gem of total confusion about the role of monetary policy:

    “There was a clear distinction to be drawn between the moral hazard of a general bail out to banks, eg by relaxing interest rates to try to influence inter-bank lending rates and the type of collateralised assistance [for Northern Rock alone] considered here.”
    (p.55 of the 2007 minutes)

    I love that “eg”. The role of monetary policy was seen as punishing over-leveraged banks, especially ones not regulated by “us”, but by those other guys over at the FSA. Really appalling political game-playing by the MPC. King, Tucker et al should be ashamed of their track record and the damage they caused. Even if they were right about the danger of institutionally splitting monetary policy from banking regulation would the result of having them joined up been any different? Probably not as long as the other (official) goal of monetary policy was Inflation Targeting. Just look at the Fed back then.

    • January 8, 2015 at 10:29

      Interesting take, James.

      Actually that’s quite the conspiracy. The “creditist” models of macro which put “bank lending” as the primary/only transmission mechanism of money appear to have done untold damage.

  3. james in london
    January 8, 2015 at 10:53

    Very true. But that doesn’t mean monetary policy can absent itself from banking regulation, sadly. When the regulation goes wrong (or its obverse, when banks do bad stuff), only the central bank can really help. The LOLR role is an important one. Scott Sumner doesn’t always grasp this point. Monetary economists are way too up in the clouds!

    Of course, targeting NGDP growth to ensure nominal stability would have helped, but one still feels that that banks got up to some very bad stuff, or rather the regulatory incentives led the the market down that route. This was particularly obvious in the massive gaming of incomng new bank regulation in order to shoot for higher leverage in one form another. The LOLR needs to be on constant alert. Funnily enough, the best flexible inflation targeters (Australia, Canada, formerly Sweden) tend to be the most alert, conservative LOLRs/bank regulators too. The UK lost the plot somewhere in the 2000s on both counts.

    Reading on this morning, it is incredible to see the separation of monetary “policy” done by the Gods on the MPC (up in the clouds) and the grubby, messy, real world of liquidity management, banking regulation, banking collapse, banking rescue. It was really quite distressing for the MPC to have NRK in 2007 make their life tougher, spoiling their nice, smoothly running balance sheet. They also got very angry with the government for ordering them to help out. Never seeing any link between the two until far too late.

  4. W. Peden
    January 8, 2015 at 12:19

    Interersting analysis, James.

    On a UK note, the Shadow Monetary Policy Committee has shifted towards a more dovish stance (barely recommending rate rises now) and the arguments for a rate increase have gotten really bad (“There needs to be a normalisation of interest rates, so we must raise rates towards 5%” i.e. “We need a rate increase because rates need to increase”).

  5. james in london
    January 8, 2015 at 12:32

    good news there

    not going to comment on this thread anymore, though, am worried about trolling like those annoying types on TMI :-)

  6. W. Peden
    January 8, 2015 at 12:50

    A shame: I was enjoying the change of tone from there!

    I shall simply add that it’s a good thing we moved away from those hard-to-measure monetary aggregates and something that “everyone understands” (as Laidler et al claim) i.e. inflation-


  7. ChrisA
    January 11, 2015 at 01:28

    James – sorry for continuing the discussion – I always wonder about the decision to split the regulatory role of banking between the FSA and the BOE by the 1997 Labour Government (since reversed) about causing some of the bad practices by banks in the 2000’s. The BOE had both a stick and carrot in terms of supervision, and being actively a market player had a lot more insight into the market place goings on than the FSA. Then there was the whole Burkian point about the fact that when a complex system had basically worked well for hundreds of years, probably you need to be very careful about changing it especially if you don’t know why it was successful. Frequent bank failures in the UK was not really the main problem in 1997.

  8. jamesxinxlondon
    January 11, 2015 at 19:49

    You are right about the dangers of messing with something that’s not that broken. The 1997 split was due to the BoE missing the BCCI fraud, and the fact that Labour Party is riddled with reformist lawyers loking to make work for their mates in private practice. The banking Act that created the FSA is a lawyers dream. Sadly, the structure was unworkable, as you say. BCCI was actually handled rather well, in the end. No major banking panic ensued. However, to be fair, the Abbey National near collapse was handled reasonably well by the tripartite authorities.

    That said, the whole Basel 2 banking regulation reform was a global movement in which an unreformed BoE would just have likely been swept up in, it partly led the movement after all. B2 helped create the excess leverage seen in the UK, in particular in the former building societies like Northern Rock. They were really mini-investment bank vehicles hiding under the guise of mortgage banks. A minor ripple in AD caused serious funding problems for NRK because of its very high gearing. It went bust due to the bungling of the tripartite authorities one year before Lehman. The bad handling lowered people’s expectations of the chances of success in future problems, partly causing the loss of confidence and linked liquidity drain that slowly brought down each of the next most leveraged banks.

    The FSA wasn’t too bad in all this, actually, realising their mistakes quite early. As did the Treasury, though the strong Labour Party political support and encouragement for plucky mortgage banks (and Scottish banks) against the big London incumbents was partly to blame. The BoE was partly playing a very dangerous tactical game to destroy the FSA and bring bank supervision home, while also (somewhat understandably) worrying about the moral hazard of bailing out banks, while also (unforgiveably) fretting about headline inflation.

    Uncannily similar events were unfolding in the US at the same time, so it wasn’t just a British thing. Also, surprisingly, Germany had the same thing going on, much more so than the European periphery.

    What a mess! A result of TBTF banks, for sure, but unsound monetary policies especially. No banking system can withstand monetary incompetence. And it is banking that is always most vulnerable in the early days of a central bank created crisis, because they are so geared, by design.

    (Britmouse, sorry for taking up this space, one day I will have my own blog! Promise.)

    • ChrisA
      January 12, 2015 at 12:38

      Thanks James. I appreciate that regardless of the supervisory system there would have been new challenges in the 2000’s. But it seems to me that the informal supervision system as practiced by the BoE pre-1997 was perhaps better than the more rule based FSA approach. Basically everyone knew what was the risks with say the NR leverage, but it met with the rules, as you say. An informal chat with say the Governor might have had more success. But counterfactual speculation, while fun, is not exactly useful.

      Myself, I definitely lean towards the high equity banking model because of the difficulty of regulating banks. Perhaps 50%. I don’t buy the arguments that this would reduce finance for industry, I don’t see banks really being a player in those markets, since most industries seem to be equity financed anyway. Bank finance nowadays seems to be all about property lending.

      And thanks BM for your hosting! Please more commentary and analysis from you in 2015.

      • james in london
        January 12, 2015 at 14:35

        Good point. My more cynical counterfactual would probably have run something like this: the BoE sees from its markets and issuance operations (the latter in reality taken to the Treasury in 1997) and from reports from its bank supervisory unit (in reality at the FSA) the wobbling of highly leveraged players. It wouldn’t want to see its shiny new regulatory regime fail and so would have worked out ways to provide more liquidity than it did, earlier than it did. Self-interest would have driven it to do better. As it was, self interest drove it to “prove” the tripartite system would fail, by (effectively) causing the failure.

        It may also have been able to use the “excuse” of parts of the ECB, about the banking system troubles hurting the smooth operation of the “transmission mechanism” for monetary policy.

      • james in london
        January 12, 2015 at 14:39

        On your 50% equity capital ratio, I prefer leaving it to the market. I would abolish deposit guarantees. We’ve moved on a bit since banks operated with so much secrecy that no-one knew how solvent they are. There would be plenty of comparison sites. And there would be low rates from low risk banks, higher rates from higher risk ones. Just like mutual funds today. Only having state run deposit guarantee schemes leads to rather a lot of moral hazard.

  9. January 12, 2015 at 10:22

    I’m very happy to see this comment section used for high quality comments on any topic. :)

  10. W. Peden
    January 14, 2015 at 11:19

    Talking of high quality comments, George Osborne sounds like a market monetarist-


    • james in london
      January 16, 2015 at 14:56

      Even Moaning Macro struggles to find something to criticise, apart from the usual derogatory remarks about Osborne’s ideological need to shrink the state, as if S W-L’s bias against “uncaring” markets is non-ideological. We all have our paradigms.

      • January 17, 2015 at 11:17

        Have now managed to read the full speech itself. It’s pretty reasonable, and the “activist monetary policy” is music to the ears. I hadn’t heard of a new “Bank of England” bill proposal before. Is this a chance to move on from Inflation Targeting to a Nominal Stability Target for the MPC, like the Financial Stability Target for the FPC, using a range of indicators, including NGDP expectations?

        The debt and fiscal stuff is all pretty sensible. Becoming Italy or Japan in terms of government debt/gdp can’t be a good idea – even if we all agree that doing austerity in a recession with tight monetary policy is insane.

  11. January 17, 2015 at 11:19

    The range of indicators could include “core inflation, after consumer taxes” if it has too, in order to keep the public and the economic journos on side . :-)

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