30 Mar 2023

A brighter outlook on retail performance despite near-term pressures

Consumers and retailers continue to be stung by high prices, but a combination of growing resilience and easing recession expectations means confidence is picking up.'

Economic challenges remain as inflation hovers close to a 40-year high at 10.1%. Middle income and least affluent households saw discretionary income fall 1.7% and 7.7% YoY respectively (Fig 1).''

Conversely, the most affluent (responsible for 40% of consumer spending) saw their discretionary income edge up 2.3% YoY in January due to strong earnings growth (Retail Economics Cost of Living Tracker).'

Fig 1: Change in household discretionary income YoY (spare money left after paying for essentials), January 2023'

Source: Retail Economics Cost of Living Tracker. Least affluent = poorest 20% of households, Most affluent = top 20%.'

Despite pressure on incomes, consumer confidence increased by seven points to -38 in February, rising above -40 for the first time since April 2022 (Fig 2).''

Expectations for the general economic situation over the coming 12 months are up by 11 points, reflecting growing optimism that a potential recession will be shorter and shallower than originally anticipated, with inflation forecast to ease considerably over 2023, dropping to around 4.0% by the end of the year.'

Fig 2: UK consumer confidence picked up in February. While overall business confidence fell, an uptick was recorded in the retail sector.'

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