Retail Insights

Seven reasons to be optimistic on the outlook of the UK retail sector

The outlook for households and consumer spending is the brightest in recent memory. An unexpected majority government, no inflation, rising real wages, record level of employment and rising household disposable income has boosted consumer confidence to levels last seen before the global financial crisis.

The good times are returning for many parts of the retail sector. Here are seven reasons to be optimistic about the performance of the sector over the next 12 months.

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1.The outlook for inflation remains low for the next 2 years
Deflation in the UK was recorded for the first time since 1960.
Lower prices in food (-2.8 per cent) and transport (-2.8 per cent) are boosting disposable incomes for households.

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2.The employment rate is at an all-time high and wage growth will begin to accelerate
Levels of employment reached 73.5 per cent in February 2015 the highest level on record.
Unemployment rate fell to 5.5 per cent in February 2015 the lowest since June 2008.

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3.Conservatives have won a majority removing any prolonged risk of political uncertainty
The prospects of a hung parliament and prolonged political uncertainty would have damaged business and consumer confidence.
Government bond yields should remain low which will help keep borrowing rates in the economy subdued.

4.Conservatives have pledged to pass a law to guarantee that VAT, income tax and national insurance will not rise before 2020 giving households additional certainty
The Conservatives have pledged to legislate against increases in VAT, national insurance and income tax over the course of the next parliament.
This will give consumer additional certainty over the next five years and may boost levels of spending and borrowing.

5.Interest rates are not expected to rise until mid-2016 and when they do it is likely they will be slow and protracted
Current market expectations suggest the Bank of England will begin hiking the Bank Rate in the summer of 2016.
Outlook for inflation remains low meaning the MPC have scope to keep Bank Rate at current levels with the MPC unanimously decided to keep rates unchanged in May.

6.Appetite and supply of consumer credit is growing. Expected to accelerate with better job security and continued cheap credit
Growth in household borrowing is beginning to gather pace as real incomes grow, confidence remains high and low costs of borrowing prevail.
Net unsecured borrowing rose by 6.9 per cent in March 2015 the fastest growth since May 2006.

7.Consumer confidence remains at historically high levels, akin to those experienced during a pre-crisis years
Consumer confidence near all-time high levels on the back of growing real incomes, better job security, strong economy and low levels of unemployment.

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