Outlook for the UK retail industry in 2017

The last 12 months has seen the UK retail landscape in continuous flux with major economic and political events swaying consumer and business confidence. While we are still in the early phases of the UK untangling itself from the EU, considerable uncertainty will persist.

It is in the hands of the UK Government to trigger Article 50 when it is ready to start negotiations. Even if the government was to serve notice to leave the EU today, the process of leaving will take a couple of years, during which time the UK remains a member and EU rules over free movement will continue to apply. In addition to goods traded with the EU, the Government will need to define the rules that will apply to goods traded with other countries. We are still no clearer on when Article 50 is likely to be triggered, when negotiations will take place, what impact there will be on investment and jobs – the list is long.

It is likely to take some time for firms to assess the impact of the Brexit vote in their employment plans. Nevertheless, it appears that most firms are putting hiring plans on hold. However, there is little evidence to suggest firms are planning on making redundancies. Indeed, in the Bank of England Agents’ Survey, 49% and 6% of firms said they would slightly and significantly reduce hiring activity, respectively, in light of the Brexit vote. Evidence from weekly online vacancies corroborates a softening in labour market demand growth since the Referendum, however, there is considerable uncertainty over the precise extent, composition and timing of any slowing in the labour market. Nevertheless, the labour market is expected to weaken in the coming months which will damage confidence and hold back spending.

Sterling is now 12% below its level immediately preceding the EU Referendum. While currency hedges and supplier contracts will delay the impact of higher import prices, the pound’s devaluation will ultimately mean higher costs for retailers which will be passed on to consumers and push up inflation – expected to materialise in Spring 2017 in earnest. Factory gate prices facing retailers have already risen sharply. We expect labour market conditions to deteriorate, on the back of weaker investment, while rising inflation will undermine real wage growth. Granted, lower interest rates will help bring down mortgage costs and borrowing rates helping to support spending. For these reasons, we don’t expect a collapse in consumer spending but for growth rates to moderate to c.1.5% in 2017.

Retailer backdrop in 2017

Cost pressures
The sharp post-referendum fall in sterling has pushed up import costs considerably...
The vote to leave the EU will have considerable repercussions for the economy over...
National Living Wage
Many retailers were able to absorb the initial rate for the NLW but as the...
Consumer behaviour change
The impact of online, mobile and digital technologies will continue to...
Interest rates
Actions taken by the Bank of England has lowered borrowing costs by...
Continued structural change
Foreign owned competition, changing consumer habits, mobile...
Business rates
Rates remain a significant cost to the industry, estimated at...
Rents and leases
Retail sector rental prices picked up in 2016, however, the weakening of...
Other regulation includes pension reforms, apprenticeship levy...

Consumer backdrop in 2017

Cost of living
Inflation has already started to accelerate on the back of sterling plunge and…....
Housing market
The housing market has started to show signs of weakness with the latest...
Wage growth is expected to moderate as business cut back on...
Credit and household debt
The growth of secured and unsecured debt has started to slow as….
Interest rates
A new record low Bank Rate of 0.25% should reduce borrowing rates for...
Renewed austerity
There is considerable uncertainty over the governments plans on the austerity plan given...
Heightened uncertainty over Brexit and what impact it will have on personal finances will...
Consumer confidence
Consumer confidence took a significant hit in the immediate aftermath of the...
Labour market
After considerable resilience in the labour market over the past 2-3 years we expect...

The Outlook for the UK retail industry 2017 report also contains economic forecasts for:
- Inflation
- Average earnings
- House prices
- Household disposable income
- Employment

And sector forecasts for: *
- Food and Grocery
- Clothing and Footwear
- Homewares
- Furniture and Flooring
- DIY and Gardening
- Health and Beauty
- Electricals

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Retail Economics/BCSC Outlook for Retail 2016

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