According to a recent report by Capital Economics, the impact of lockdown savings and buy-now-pay-later services on retail demand has been significant. Despite consumers facing financial constraints, these factors are expected to help maintain their spending habits. In fact, evidence shows that households are relying on credit, resulting in a £1.9 billion increase in consumer credit in February.

Ruth Gregory, senior UK economist at Capital Economics, suggests that while households may experience a squeeze on their real incomes, the rise in employment and earnings can help offset this. Moreover, Gregory points out that consumer spending has the potential to continue rising even as real incomes decline. However, if the decline in real incomes persists for an extended period, households might be more inclined to change their spending behavior.

Meanwhile, the retail sector is predicted to face difficulties in the upcoming months, as KPMG/Ipsos Retail Think Tank (RTT) experts foresee a decline in its health. Contributing factors include rising costs, such as increased food prices due to the conflict in Ukraine and lockdown measures in China. Despite these challenges, the first quarter of 2022 saw reported sales growth exceeding expectations, and consumer demand remained strong, keeping the Retail Health Index flat at 75 points, the same level as before the pandemic.

Contrary to headlines suggesting a decline in footfall, KPMG’s head of retail explains that physical retailers are actually experiencing an increase in customers who are eager to treat themselves after two years of Covid restrictions. This trend indicates that consumers are eager to return to in-person shopping experiences and indulge in retail therapy.

Useful Links:
1. Capital Economics