Retailers will struggle in 2017 as rising food price inflation leaves shoppers with less to spend on discretionary items such as clothing and homeware, according to a leading industry thinktank.
Prices could rise by between 2.5% and 3% next year, led by an expected 2.4% rise in the price of food and groceries, the highest level since 2013, according to the Retail Thinktank, a group backed by the British Retail Consortium (BRC) and analysts at advisory firms KPMG, Verdict, Nielsen and Ipsos Retail Performance.
Maureen Hinton at Verdict said: “The higher price of imported goods following the EU referendum, and the fall in the UK pound, has been masked by currency hedging in 2016, but this starts to unravel in Q2 2017 and all retailers, struggling with cost inflation and squeezed margins, will be forced into passing on price rises to the consumer.”
Shoppers have so far been unaffected by the Brexit vote, with sales growing 1.3% in the month to 26 November, but according to the latest data from the BRC-KPMG retail sales monitor, the thinktank said the triggering of article 50 in March, which will kickstart the formal process of the UK leaving the EU, was likely to increase uncertainty.
James Knightley of ING said: “Despite the current period of relative calm ahead of article 50 being triggered, businesses are wary. Surveys from the Bank of England and others are pointing to a sharp slowdown in both hiring and investment spending over the next 12 months.
“This is largely due to the perceptions that uncertainty will increase once the Brexit countdown clock begins. An intensification of UK-EU hostilities could result in more businesses sitting on their hands … and this may feed through into weaker consumer confidence.”
Retailers’ performance over Christmas will not become clear until next week when many major groups, including Next and John Lewis, are expected to reveal their trading figures.
Early figures indicate a tough time for physical stores while online retailers have enjoyed record sales.
The number of people visiting UK shops was down by 7.3% on Boxing Day, one of the most important dates in the retail calendar, according to the monitoring firm Springboard. That followed a disappointing Christmas Eve when, instead of the expected last-minute rush of gift buyers, footfall dropped 5.9% on the year.
Boxing Day online sales rose by 6.2% compared with the record-breaking 2015, according to figures from the e-commerce data company PCA Predict.
Springboard, which uses electronic sensors to count shopper numbers, predicts that footfall for the last week in December will be down 2.3% on the same period last year as a growing tendency to spend on nights out adds to the shift to online shopping.
Fashion retailers, however, are expected to have enjoyed a better season as more normal chilly weather returned after two unusually warm autumns and winters. A surge in tourist spending prompted by the fall in the pound is also likely to have helped luxury shops and stores, especially in London.
James Knightley, senior UK economist at ING, said: “The strength of the economy following the Brexit referendum has surprised many, but we must remember that article 50 is still to be triggered. Scheduled to happen before the end of March, it will coincide with Dutch elections and possibly Italian elections, while the French presidential election campaigning will be in full swing.”
