UK retailers warn of risks of rising cost of living sales in 2022 | Retail sector

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British retailers said the rising cost of living threatens to dent high street sales in 2022 after a bumper trading period at Christmas and a year of recovery in consumer spending.

The alarm has sounded about risks to the British economy as a whole, and the British Retail Consortium said there are significant headwinds for the industry in 2022 from rising inflation, rising energy bills and planned tax increases.

In a joint report with accounting firm KPMG, BRS said the rising cost of living will erode household purchasing power and have the potential to affect retail sales after a strong festive season and year of recovery lost during the initial phase of the COVID-19 pandemic.

According to the latest snapshot, total retail sales rose 2.1% during the main month in December, compared to the previous year, and were up 4.6% compared to 2019, before the outbreak of the pandemic.

Reflecting a stronger full-year performance as the UK economy recovered from frequent lockdowns, total sales grew 9.9% compared to 2020, and 6.6% compared to 2019.

However, retail chiefs said the emergence of Omicron and increased pressure on household budgets could hurt sales at the start of 2022.

Helen Dickinson, CEO of BRC, said: “Retail faces significant headwinds in 2022 as consumer spending declines due to higher inflation, higher energy bills and an increase in National Insurance in April.

“It will take continued agility and flexibility if they are to weather the next storm, while tackling issues from labor shortages to rising transportation and logistics costs.”

Boris Johnson is under mounting pressure from his lawmakers to take action on the crisis. Home utility bills are expected to rise sharply from April, when the energy regulator, Ofgem, raised its consumer price ceiling after rising wholesale gas and electricity costs. Energy industry chiefs have said prices could rise more than 50%, or about £700 a year, in a “national crisis”. The increase comes in the same month that the government’s plan to raise the national insurance by 1.25 percentage points is presented.

According to the report by BRC and KPMG, sales of clothing and jewelry continued to dominate the purchase of Christmas gifts, while spending on food and drink was strong despite concerns about the Omicron effect. Industry leaders said concerns about supply chain problems appeared to have been overcome as retailers “pulled out all the stops”.

Dickinson said many people chose to shop online in December rather than traveling to the main streets and nearby malls. Sales of lounging rose as office workers returned to work from home and spending on formal wear fell as Christmas parties were cancelled.

Separate figures from Barclaycard showed consumer card spending grew 12.2% in December compared to the same period in 2019, boosted by supermarket purchases where consumers stocked up on festive food and drinks.

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However, spending on hospitality and entertainment has fallen as festive gatherings are canceled and more people are isolated or choose to stay at home.

Barclaycard, the UK’s largest credit card provider, which processes nearly half of all card transactions, said spending at restaurants fell 14.1% in December compared to the same month in 2019, followed by a 3.5% drop in November. Spending at bars, pubs and clubs in December rose 21.2%, down from a 35% increase in November, compared to the same months in 2019.

Barclaycard said 43% of 2,000 people surveyed on behalf of the credit card provider expected high inflation to affect their family budgets. “The broader economic picture encourages consumers to be more careful about their discretionary spending,” she said.

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