What’s Next for UK Shoppers and Retail Demand?
UK consumer spending is expected to experience a modest recovery in 2025, according to analysts from Bank of America.
- Real income growth and reduced monetary drag are likely to support demand in the coming year.
- However, there remains uncertainty regarding the balance between savings and spending, with inflationary pressures posing potential risks.
Bank of America forecasts consumption growth of 1.0% in 2025, driven by 1.4% real income growth year-over-year.
- Analysts note that while inflation is anticipated to rise in the coming months, wage growth (expected to slow to around 4% in the second half of 2025 and average 4.4% for the year) is expected to outpace inflation.
However, the analysts highlight a key concern: the rising savings rates have dampened the positive impact of real income growth on spending.
- Recent increases in savings have largely been used to reduce outstanding debt, driven by higher interest rates and concerns about mortgage payments.
Despite this, Bank of America predicts that the trend could reverse with expected monetary easing and lower interest rates.
- A 1% fall in savings rates due to lower interest rates could result in consumption growth closer to 1.7%.
On the other hand, rising economic uncertainty, inflation, or increasing unemployment could lead to even higher savings rates and stagnant consumption.
- If unemployment rises to 5% and policy uncertainty increases, savings rates could climb further, limiting household spending.
Retail Inflation and Consumer Sentiment
The report also notes that retail inflation has risen since December, averaging 2.5% in January.
- Both apparel and food retail sectors have been affected by these inflationary pressures.
While grocery sales have shown resilience, supported by price-driven sales growth, Bank of America notes that the apparel sector remains more vulnerable to shifting consumer sentiment.
- The more discretionary nature of apparel makes it more sensitive to changes in consumer confidence.
In conclusion, Bank of America suggests that the less discretionary nature of food retail may continue to support stronger volumes compared to other categories, like apparel, particularly if consumer sentiment remains under pressure.
Source: pune.news
