Retail Forecast

Retail Forecast 2019 - 2020

There was a time when economic forecasting involved a long series of macro-economic simultaneous equations. Each equation attempted to model a segment of economic activity, such as house-building, the car industry and consumer spending. You inserted your estimates and the model did all the hard work.

These days, we are no longer sure exactly how the economy works and with issues like the Tump tariff war and the consequences of Brexit there are so many unknowns that forecasting is complex. 

Our Forecast for 2019 - 2020
Table 1 shows CRR’s own forecast for UK economic growth (GDP, or Gross Domestic Product) and for the growth in consumer spending. Overall, we see 2019 as probably ending with GDP growth in the range of 1.1% to 1.3% and consumer spending rising by 1.5%. Although there was an apparent setback in 2019,Q2, with growth in the second Quarter -0.8% below the same quarter in 2018, CRR are not fans of the ‘technical recession’ phenomenon in which two successive periods of even mild negative growth are classified as a recession, particularly as the ONS often revise upwards their initial GDP figures. In this unpredictable world, claiming that two negative quarters MUST ALWAYS produce a recession is a scholarly paper too far for us.

Table 1
Economic Forecast for UK









Consumer Spending




The above figures assume that Brexit will occur later in 2019. We expect consumer spending (including retail) to be hit in 2020 as growth may slow following Brexit: consumer spending may rise by only 0.8%.

Our figures for 2021 are our best guesstimates and assume that

  1. 80% of any Brexit disruption has been sorted out by then.
  2. International world trade is starting to grow again after the slow-down in 2019-20.
  3. There will not be a world slump in 2020-21.

We expect to revise these figures as Britain’s post-Brexit trajectory becomes clearer.

Discussion: The Main Economic Horrors Affecting UK 2019 - 2020

The world economy is no longer in good shape:

  1. China’s GDP growth has slowed once again to around +6.0%
  2. World trade in manufactured goods has slowed: German GDP growth is now negative mainly because China is not importing as many of its vehicles and manufactured goods
  3. The Eurozone countries are reasonably stable, but expected growth is slow: the problems of Italy’s economy will, no doubt, be addressed by the EU in the usual way.
  4. The American economy (a major driver of global economic growth along with China) is showing signs of slowing down. Lower interest rates and Trumponomics (he will seek re-election in November 2020) should keep the US economy going for at least another year.
  5. President Trump’s trade wars with China and the EU have a chilling effect on exporters, but have had some positive results from the American point of view.

On the Good Side. Policy wonks in many countries, faced with the need to do something to reinvigorate their national economies, are dusting off their textbooks to discover the as-yet unknown Son-of-Quantitative-Easing to deal with the current downturn in this disappointing period of slow growth. They are sincerely trying to anticipate the likely problems of their economies over the next two-to-five years and apply the right polices now, rather than wait. Even the Bank of England is joining the party. We see this as an encouraging sign. 

Most analysts expect a period of slower growth rather than recession.

The Peculiar British Problems of 2019 - 2020 

Because we currently do not know much about whether we will leave the EU, how we will leave, the nature of any transitional arrangements and how existing trade with Europe will be affected by leaving the EU it is hard to game the results of Brexit. We are mildly optimistic, but only in the sense that we are not pessimistic.

Supply side. On the supply side, there are likely to be some shortages as existing distribution arrangements are negated. If the flow of transport and goods continues as now without much interruption there should be few shortages. But if the customs arrangements are rigorously enforced then Britain’s role as one of the foci of the European distribution network will be endangered.

The government has announced the new tariffs they will apply to incoming goods. These are mostly low or zero, which seems stupid as this means there is nothing to negotiate with when dealing with other countries. From a consumer point of view it means low prices, but that should not be the only consideration.

Retailers have done their best to ensure continuity of supplies, but they still do not know what form of Brexit will occur. They can stockpile to some extent, but the average supermarket only carries not more than three day’s supplies of goods and the age of just-in-time ordering means that they have insufficient warehouse space for more than, say, a week’s supply.

Obviously if ‘disruption’ means more than occasional delays and about 2%-4% of merchandise missing from the shelves, GDP output may fall because supplies do not get through or goods cannot readily be sent abroad. This is a possibility.

Government action. The new government has already made several major policy commitments that involve large-scale spending. We also expect that if the economy slows down further in the early months of Brexit, the government will try to increase demand in the economy, for example by reducing VAT. This would have an immediate effect unlike, say, income tax reductions. The Bank of England is also thought likely to adopt a supportive monetary policy, although interest rates are now very low already.

Consumer behaviour. There has been a great deal of uncertainty about Brexit policy, whilst the unpleasantness of our national politics of it simply seems perverse. This has undermined consumer confidence and held back personal spending. In the early months of Brexit we expect shoppers to be very cautious, but if the world they see is little different from the one they knew before, they should start spending from about April 2020. If however there are major differences in prices as well as shortages of key items (the most likely areas are medicines and fresh produce) and the quality of public discourse remains invidious, spending may be low all year. Presumably people will stock up in 2019 before Brexit occurs and the early weeks will determine whether they then run their stocks down (reduced retail spend) or increase stocks further.

Rebuilding consumer confidence will depend on
(a) government macro-economic policy, its willingness to boost spending and the interventions it makes to prevent disruption,
(b) the quality and content of government communications with the public about what the future holds for them,
(c) the success of longer-term trade projects with America, Canada, Australia, New Zealand and South-East Asia to build new relationships.

We’ll see.     

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