National Minimum Wage

National Minimum Wage
1.20 An alternative measure of output, sales, is available for the retail sector. Official retail sales
figures from ONS show that the sector did relatively well during the recession with total
sales values holding up (annual growth never fell below 0.6 per cent) and volumes only falling
for a brief period (March-May 2009). Retail sales values have improved since March 2009 and
annual growth has been above 2 per cent in every month since August 2009. But much of
this growth has been due to price inflation. Retail sales volume growth has slowed since the
end of 2009, and for most of 2011 annual growth has been flat. Estimates from the BRC-
KPMG Retail Sales Monitor were weaker than the official estimates and showed that total
retail sales growth had been averaging around 2 per cent for much of 2011. The CBI
Distributive Trades Survey followed similar trends. All three surveys had also noted
divergence within retail, reporting food and internet sales performing much better than other
retail. We now turn to look at prices, settlements and earnings.
Prices, Settlements and Earnings
1.21 The latest inflation data available to us at the time of our 2011 Report related to December
2010. They showed annual quarterly growth in CPI and RPI at 3.4 per cent and 4.7 per cent
respectively. These rates were some way ahead of 2010 forecasts and had been driven by
greater than expected upward pressures from import prices and indirect taxes. Forecasts
indicated these pressures would continue into early 2011, especially given the then recent
energy price increases still working their way through the system, and the increase in Value
Added Tax (VAT) from 4 January 2011, leading to further rises in both inflation measures in
the first half of the year. Thereafter, inflation rates were expected to fall, with the median of
independent forecasts showing CPI at 2.9 per cent in the fourth quarter of 2011, and RPI at
4.0 per cent.
1.22 In our 2011 Report we noted the considerable risks around these forecasts and that they
were finely balanced. We were therefore cautious about the weight we should attach to
them. Our caution was justified. As Figure 1.3 shows, by September 2011 there were no
signs of the expected downturn in inflation on either measure, and both were substantially
higher than they had been at the beginning of the year with CPI standing at 5.2 per cent and
RPI at 5.6 per cent. The CPI figure was well above the Government’s 2 per cent annual
inflation rate target throughout the period, occasioning several explanatory letters from the
Governor of the Bank of England to the Chancellor of the Exchequer. In his letters the
Governor drew attention to continuing upward pressures from VAT and the steep increases
in import and energy prices, and argued that without these temporary effects CPI would have
been below its target.
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