Retailers are set for a strong end to the year as shoppers from overseas seek out bargains and Brits snap up big electrical goods and furniture before expected price rises next year.
Despite fears of a Brexit slowdown, retail sales growth picked up in the final quarter of the year, according to the latest Bank of England report on business conditions.
A monthly survey by the Bank’s network of regional agents found households were thought to be bringing forward purchases of larger items.
Retailers have said prices are likely to rise because of the 15% fall in the value of the pound against the dollar since the EU referendum.
Caroline Gulliver, an analyst at Jefferies, said: “We believe Christmas trading for 2016 could be surprisingly robust compared to performances [so far this year] as a combination of weak comps [comparative figures], high disposable income and modestly helpful weather persuade consumers to spend. However, we do feel this will be a last hurrah ahead of a tougher 2017 as inflation accelerates.”
A monthly poll by market researchers GfK found that consumer confidence edged up in December, although it remains well below the levels seen before the vote to leave the EU.
The barometer’s main measure of consumer mood stood at -7 this month, up from -8 in November. People were marginally more upbeat about the prospects for their personal financial situation over the coming 12 months and they were more confident that now was a good time to make big purchases such as furniture.
But three other measures examined by GfK deteriorated: personal financial situation over the past 12 months, state of the economy over the past year and outlook for the economy over the coming 12 months.
Joe Staton, head of market dynamics at GfK, echoed economists in warning that the pound’s fall since the referendum was stoking inflation and starting to affect consumer spending patterns.
“Looking ahead to 2017 against a backdrop of Brexit negotiations, the decline in the value of sterling and the prospect of higher inflation impacting purchasing power, we forecast that confidence will be tested by the storm and stress of the year to come,” said Staton.
The CBI said in a separate report that its indicators from the private sector pointed to a solid close to the year but it highlighted challenges in 2017.
Its growth indicator, compiled from surveys of 788 respondents from manufacturing, the retail industry and the broader services sector, climbed to a balance of +17% in the three months to December, the highest in a year.
The manufacturing sector saw a strong rise in activity, and although retail sector growth slowed from November’s pace, the report said the rise in sales remained solid.
Alpesh Paleja, the CBI’s principal economist, said: “It’s great to see the economy end the year on the up, with growth strengthening across the private sector. However, economic growth is likely to soften next year, as heightened uncertainty hits business investment and higher inflation weighs on household spending.”
Retail analysts said high employment levels and low interest rates as well as higher levels of disposable income as wage rises outstripped inflation were likely to have a bigger influence on behaviour this Christmas than fears of inflation next year.
Clive Black, a retail analyst at Shore Capital, said people were yet to feel any financial pain from the approach of Brexit. “I don’t think that inflation is a material driver in consumer behaviour at the moment. I struggle to see a lot of people sitting down and saying ‘inflation is going to be 3.5% next year let’s go and buy a sofa,’” he said.
The fall in the value of the pound has helped luxury retailers, which are enjoying booming sales as foreign visitors buy up handbags, jewellery and other designer products.
Meanwhile, fashion retailers – who account for one of the largest shares of spending at this time of year – are having a better season thanks to relatively normal winter weather after last year’s prolonged warm spell.
The Bank of England’s network of regional agents added that increased “staycationing”, as higher costs deterred Brits from holidaying abroad, was supporting growth in consumer services.
