High confidence, low inflation and a cold spell point to happy Christmas for retailers

9th December 2014

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High consumer confidence, strong employment, low inflation and colder weather are pointing to a happy Christmas for retailers, economist Howard Archer has forecast.

Archer, the chief UK and European economist at IHS Global Insight, said that John Lewis’s relatively strong sales, up 10.8% year-on-year in the week to December 6 at £160m, are a key indicator that the momentum of Christmas spending is starting to build.

Archer said that while Black Friday provided a major lift to retail sales at the end of November a key question will be to what extent did these just pull forward sales from December.

He also said that the desire for bargains in the Black Friday promotions was undoubtedly heightened for many people by the extended squeeze on purchasing power coming from prolonged low earnings growth.

Archer said: “The fact that John Lewis’ sales held up pretty well the week after Black Friday’s surge is reassuring to retailers’ hopes that this really will be a good Christmas for them – even allowing for the fact that John Lewis tends to be very much an out-performer in the retail sector.

“It is also good news for retailers that the weather has finally turned colder, as this is providing a much needed boost to sales of warmer clothing which until recently has been hit hard by the mild weather. This was reflected in John Lewis reporting strong sales of women’s cashmere accessories,  men’s knitwear and dressing gowns.”

Archer added that in a number of respects, the fundamentals for consumer spending this Christmas are very decent, with confidence at a high level, employment high and consumer price inflation (1.3% in October) very low.

Furthermore, he said, there are signs that earnings growth is finally beginning to trend up. Specifically, total annual weekly average earnings growth improved to 1.4% in September from 0.9% in August and 0.4% in May.

But he warned that retailers will be aware that extended low earnings growth and still high debt levels has limited many people’s purchasing power and this may well “keep them on their toes on the promotions front”.

He said: “A number of consumers may well hold back on their Christmas shopping in the hope that a significant number of retailers will engage in last minute major promotions and sales to drum up final Christmas sales.”

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