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Note: This report summary is one or two months behind the current month as standard reporting practice. The content is indicative only and incomplete with certain data undisclosed. Become a member to access this data or take out a free 30 day membership trial now.
Retail sales edged up by a rather subdued 00% YoY according to the Retail Economics Retail Sales Index (value, non-seasonally adjusted, exc. Fuel), with retail hit by the rapid emergence of the Omicron variant and higher than expected inflation in December.
Inflation lifts value growth
Retail inflation measured by ONS’s price deflator hasn’t been higher in 30 years at 00% in December (excluding fuel), as businesses start to pass on to consumers the impact of recent supply chain disruption.
This is likely to be the start of value growth detaching from underlying retail volumes, with persistent inflationary pressure creating a wedge between the two going into 2022.
Plans cancelled voluntarily
Underlying demand for volume growth in December was under pressure from the timing of Covid cases accelerating. This saw consumer confidence nudge down to -15 in December from -14 in the previous month (GfK). Retail volumes nudged up just 00% YoY in December according to the ONS (non-seasonally adjusted, exc. Fuel).
The return of work from home guidance, following the government’s imposition of its more stringent ‘Plan B’ restrictions in mid-December, came alongside a persistent ‘booster’ campaign in the month. This saw households make voluntary changes to their actions and revert to previously learnt lockdown-style behaviours.
Spending power squeeze
From Q2 2022, households are facing a pronged hit on finances from hospitality VAT returning to 20% (from 12.5%), an increase in NIC of 1.25 percentage points, and the prospect of a 50% uplift in the energy price cap.
Although the labour market has driven strong earnings growth of late, real earnings had already slipped into negative territory in November.
Concerningly, this trend is expected to persistent over the next year, with real earnings expected to remain in negative territory for the rest of 2022 as inflation is forecast to peak at 00% in Spring 2022.
Impact on retail
This is leading households to brace the impact of further erosion in spending power, as a certain amount of inflation is already baked in from Q2 2022.
Some 00% of consumers expect their personal finances to weaken over the coming quarter according to Retail Economics’ latest shopper sentiment survey.
Pessimism is greatest among 45-54 year olds (including adults with dependents) and 65+ (including pensioners).
Intentions to spend are being hit hard. Some 00% of consumers intend to spend less on non-essential items over the next quarter, rising rapidly from 00% in October (Retail Economics)
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Real earnings expected to decline for most of 2022
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