Cost of living crunch set to hit retail sales further

21 January, 22

Commenting on the December ONS retail sales data, which showed an hit to retail sales volumes of 3.7%, Jacqui Baker, partner and head of retail at RSM UK, said: ‘It’s disappointing to see the largest fall in retail sales since January 2021 in a final month of the Golden Quarter with clothing sales hit hardest by a fall of 8%. December was expected to be a struggle, but early Christmas shopping brought forward to November was compounded by Plan B restrictions and the fear of Omicron changing consumer behaviour throughout December limiting socialising, footfall and sales in December.

‘In addition, price inflation restricted Christmas spending with an average retail price increase of 6.2% when compared to last year, which will be a continued theme in 2022 as the cost of living crisis hits household budgets. Essential outgoings will increase with soaring energy costs, higher mortgage repayments and increased petrol prices all putting extra strain on disposable income.

‘At a time when the sector is still reeling from a difficult Christmas period, another blow to sales at the start of 2022 is the last thing retailers need. Any Government support to take the sting out of the cost of living crisis would be welcomed to allow the sector time to recover as we re-emerge from the Omicron peak. This will allow consumer confidence to improve as restrictions lift and employees will return to the office, boosting footfall and potential sales.’

Thomas Pugh, economist at RSM UK, added: ‘The sharp drop in retail sales in December is in line with our view that GDP probably shrank by around 0.5% m/m last month. Low and falling unemployment combined with strong nominal wage growth would normally be a strong setting for consumer spending and retail sales. However, the surge in energy prices, which is likely to see household bills increase by 50% in April, along with higher fuel prices and an increase in national insurance contributions means that real wages, which take inflation into account, and real household disposable income are both likely to fall by a little over 1% in 2022. The saving grace is that household balance sheets are in an extremely strong position so households can borrow or dip into their huge pile of savings to offset the impact from higher inflation, which means we still expect consumer spending to grow by more than 5% y/y in 2022.’

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