Retail demand is protected by shoppers using foreclosure savings and buy-it-now-pay-later services

Thursday, April 21, 2022 6:34 a.m.

Retail consumer demand will be protected as shoppers dip into lockdown savings and use buy now, pay later services, despite increased pressure on household budgets.

Economists have said consumer demand will not see a significant decline in the coming months despite the tightening of purse strings across the country.

Evidence has shown that households have turned to credit to “help them out”, according to Ruth Gregory, senior UK economist at Capital Economics, pointing to a £1.9bn jump in consumer credit in February.

She added: “In the coming months, some of the pressure on real household incomes will be eased by employment and incomes which will rise further.”

There was “a possibility that consumer spending would continue to rise as real incomes fall,” Gregory explained. “It is clear, however, that the longer the pressure on real household income lasts, the more likely it is that households will change their consumption behavior”

It comes as the health of the retail sector is expected to decline over the coming months as businesses face a barrage of costs.

“Clouds are looming over the horizon for more moderate health” for the sector in the coming months, according to KPMG head of retail Paul Martin.

The conflict in Ukraine and the lockdown in China are expected to cause food prices to accelerate, with fertilizer costs and wholesale food prices rising, Martin added.

Reported sales growth in the first three months of 2022 was stronger than expected, according to members of KPMG/Ipsos Retail Think Tank (RTT).

Robust consumer demand saw the Retail Health Index (RHI) stagnate at 75 points in the first quarter, equal to the last pre-pandemic quarter.

Footfall at brick-and-mortar retailers was up, Martin added, “despite the headlines”, with shoppers wanting to indulge after two years of Covid rules.