The price of oil dropped to a four-month low after the International Energy Agency (IEA) announced that its members had agreed to release 60 million barrels from their emergency reserves over the next month. The US and Britain will release 30 million and three million barrels, respectively; Japan, Spain, France, Germany and Italy are also contributing. They are doing so to fill the gap created by disruptions in supply, particularly from Libya, which could lead to further volatility in oil prices and thus, according to the Department of Energy and Climate Change, "damage the economy and threaten the global economic recovery".
This is the third time in the IEA's history that its member countries, now totalling 28, have taken the decision to release emergency stocks. The first occasion was during the Gulf war of 1991; the second was in 2005, after Hurricane Katrina damaged offshore rigs, pipelines and
refineries in the Gulf of Mexico.
The drop in the oil price should help keep inflation in check. As a consequence, the UK "yield curve" has moved down. This means that the market doesn't expect the Bank of England's Monetary Policy Committee (MPC) to raise interest rates until well into 2012 - it doesn't believe the hawks on the MPC.
In contrast, the bad news from the high street continues. The latest forecast from the Office for Budget Responsibility (OBR), produced in March 2011, may have been bullish - it predicted a strong rise in consumer spending through to 2015, with consumption, investment and net trade acting as major contributors to growth in the years ahead - but now it doesn't look so good. According to the Office for National Statistics, the month-on-month value of retail sales fell by 1.4 per cent after growing 1.1 per cent in April. Food store sales fell 3.2 per cent in May compared to April, the largest decrease since the sales series began in 1988.
The retail sales monitor published by the British Retail Consortium (BRC) and KPMG reported that sales values were 2.1 per cent lower on a like-for-like basis in May 2011 compared to May 2010. Electrical retailers have been hit hard. Dixons Retail, which owns Currys and PC World, announced losses of over £224m, and 17 Comet stores are closing after a loss of nearly £9m. The collapse of the furniture store Habitat, which went into administration on 24 June, threatened the loss of 720 jobs and the closure of 30 stores. Shoppers are shifting to cheaper brands: sales at the discount grocers Aldi and Lidl have increased 18 per cent, a level not seen since the depths of the last recession.
Richard Dodd from the BRC said that firms which sell home and electrical goods have been hit especially hard: "Our retail sales monitor shows that there's no question that things are very, very difficult, now we've got past the distortion of Easter and the extra bank holidays."
The latest distributive trades survey from the Confederation of British Industry (CBI), spanning the period between 27 May and 15 June, showed that 33 per cent of retailers had experienced an increase in sales volumes on a year ago, while 34 per cent had reported a fall. Clothing sales were flat (-2 per cent), the lowest balance since January 2010 (-12 per cent). Grocery sales grew at the slowest pace in more than two years. Sales of durable household goods (-85 per cent) and footwear and leather (-82 per cent) fell rapidly.
Commenting on the figures, Judith McKenna, chair of the CBI's distributive trades panel and Asda's chief financial officer, said: "After a
year of growth, high-street sales volumes fizzled out in June. Consumers are feeling the pinch as disposable incomes continue to be squeezed by rising prices and weak earnings growth. The cost of living is increasing and petrol prices have risen particularly sharply. Shoppers are budgeting hard and cutting back on their discretionary spending."
The evidence that people are hurting is growing. In previous columns, I have reported results from the Eurobarometer series of surveys, conducted by the European Union across all its member countries. New information has recently become available from a survey of 26,000 people, conducted in February and March this year. Respondents were asked: "During the past 12 months, would you say you had difficulties to pay your bills at the end of the month? Most of the time; from time to time; almost never; never." Eurobarometer asked a similar question in May 2010. The proportion who replied "most of the time" is presented in the table (below).
For better or worse
From these findings, three things stand out. First, the proportion of those struggling to pay their bills has increased sharply in less than a year in every country except Germany, Finland and the Netherlands. Second, the proportion of those who say they are having difficulties paying their bills most of the time is especially high in the countries that have imposed austerity measures - Greece, Ireland and Portugal. Third, in answer to the same question, one in ten UK respondents said he or she was having difficulties paying bills most of the time, which is a markedly higher proportion than in many of our neighbouring countries, such as Belgium, Denmark and the Netherlands.
Things are likely to get worse looking forward. The final column of the table shows the findings of a question that was asked in another sweep of the survey, conducted in November and December 2010: "What are your expectations for the next 12 months? Will the next
12 months be better, worse or the same, when it comes to your life in general?" Seventeen per cent of UK respondents said they think that things will get worse, a figure beaten only by Greece (47 per cent), Portugal (41 per cent) and Ireland (30 per cent) - it is higher even than in Spain (15 per cent). Life in Britain is about to become very tough.
David Blanchflower is NS economics editor and a professor at Dartmouth College, New Hampshire, and the University of Stirling