With the likes of EY and Goldman Sachs predicting the UK will be in recession until at least the middle of next year, investors, workers, and bosses have all eyes on the economy. One area being watched with baited breath is the retail sector.

In 2020, retailers were hit hard by the pandemic, but those that adapted to ecommerce and home delivery fared well throughout lockdowns and into the post-Covid recovery period. With a whole new danger hitting consumers – inflation – will the same be true? Or are retailers in for an even bigger shock?

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The good news for retail

In 2022, the retail sector is performing much better than expected. According to PwC, the strong Q4 2021 period that many retail businesses had put them in a strong position for 2022, and as such 73% of UK CEOs have confidence in the growth potential of the UK economy and 83% in the global economy.

Analysts believe that 2022 will remain a good year, despite economic headwinds. The first reason is consumer sentiment – customers are still upbeat about the prospect of them spending money, even as prices increase. Next, unemployment is still low, and many sectors are gaining significant wage increases from employers. That means more people in work, earning more, ready to spend it in retailers.

Finally, pent-up demand from Covid hasn’t been totally spent. Many people still have purchases they want to make, and lockdown savings to spend. Two great portents for retail businesses.

…And the bad news

Unfortunately, despite these positive signs, there are plenty of things that could scupper growth in the retail industry.

The largest is the increase of inflation, which has meant and will continue to mean importing and exporting will become significantly more expensive as forex exchange rates have been impacted significantly by reaction to political developments in the UK and the perceived weakness of the wider British economy. That means higher prices as retailers struggle to make a profit.

The big test for retail will, of course, be Christmas 2022. Will it buck the inflation and post strong sales once the performance has been counted? Or will rising prices have spooked consumers away and reduced demand for retail, harming sales in kind?

What do you think the prospects are for retail in the UK in 2022 and 2023? Are you planning on spending less this Christmas? Let us know your thoughts and insights in the comments section below.