Retail Forecast 2021 - 2022

We produced a forecast near the end of Lockdown III as part of research for The forecast given here is that original forecast, revised to take account of fairly benign retail and consumer trends over summer 2021. This current forecast is dated 23 August 2021.

Forecast timing. The first part of 2021 involved a Lockdown which closed all non-essential retail stores, although food and other stores such as hardware, pharmacies, newsagents and others were allowed to continue trading.  The devolved regions (Wales, Scotland and N. Ireland) pursued similar policies.

The impossibility of forecasting. Traditional macroeconomic models are based upon a variety of statistics fed to a computer about the economy, money, government borrowing, etc, which then churns out some forecasts. They do not work terribly well under present conditions, because much of the data is not timely and no one really knowns how consumers and retail businesses have responded, are responding and will respond in the future to the massive, tragic and largely unknown changes brought about by coronavirus. When you add in the impact of Brexit, the devastation of industries and businesses in the UK and overseas, the supply difficulties of many raw materials and finished products and the future uncertainties about whether there will be further Lockdowns predicting the future accurately becomes difficult, if not impossible. It still has to be done however.  

Retail as a leading indicator. Fluctuations in retail sales are used by most countries as a ‘leading indicator’ of macroeconomic patterns in the domestic economy. In simple terms, trends in the direction of retail sales are normally regarded as showing what is happening to the consumer-spending economy in real time. Rapidly-rising retail sales may indicate higher GDP growth rates, whilst a slower growth in sales may indicate consumers are becoming more cautious so that economic growth may slow or fall. All this assumes that retail sales are generally free of constraint and that people can spend what they want. But in a world where governments close most retail premises, because they are deemed 'non-essential', normal patterns may no longer apply. 

The Forecast

Our final forecast for 2021 is that total retail sales will grow by 4.2% this year against 2020. The first part of the year, Lockdown III, reduced consumer spending on travel, tourism, eating out, hospitality and entertainment. Spending on retail merchandise rose slightly in the first quarter of 2021 (by 2.0% against 2020). Shoppers could still visit supermarkets and 'essential stores', as well as buying goods online. Pubs, restaurants and hotels were closed so shoppers bought more food online, refreshments and alcoholic drinnks. Non-essential shops re-opened when there were still restrictions on hospitality, travel and entertainment. When hospitality and similar outlets started to open again, there was naturally a fall in equivalent sales made by stores. However greater freedoms meant that household projects around new furniture, home improvements and repair could get started, boosting sales of household goods. The fact that travelling abroad was either impossible or extremely difficult meant that more UK households took their summer breaks in the UK. This boosted UK hospitality, hotel and tourism, but was also good for domestic retail in holiday destinations (although city-centre retail spending has generally suffered).


Forecast 2021: retail sales growth (online and offline)                +4.2%

Forecast 2022: retail sales growth (online and offline)                +4.5%

Table 1

Actual and Forecast UK Retail Sales Growth (all retail: online and physical stores)


Food Sales *

Non-food sales * 

Online Sales Online Share of Retail
2019 +2.7% +1.3% +10.3% 19.2%
2020 +4.9% -12.3% +46.2% 28.0%
2021 +2.1% +8.6% +8.4% 30.3%

*Both online and offline (physical stores)         


-  The growth in Food sales has moderated since the end of Lockdown III, but less than we expected. So far, hospitality outlets have not yet regained the custom they had in 2019, hence the totals of drinks at home and meals at home remain high. The fall in city-centre use, the continuation of social distancing and the need to be seen to continue anti-contagion practices have reduced the numbers of customers that hospitality outlets can serve.     

-  The reopening of non-essential stores after Lockdown III restarted town-centre shopping and produced greater use of city centres, though this is running at only 75% of that seen in 2019. There has been an increased use of physical stores to purchase goods - though at a much lower rate than 2019. This has meant that online retailers have lost some of the trade they gained because of the closure of most non-food stores in the Lockdowns. We are not arguing that online sales will revert to where they were in 2019 (19.2% of total retail sales), but that they will not retain all their gains. The forecast shows that the share of online businesses is expected to reach 30.3% for the whole of 2021 compared with 28.0% for 2020. This might seem to conflict with what was put in the previous sentence, but much of the 2021 online growth happened in the Lockdown. As long as there are no Lockdowns in 2022, the online share is actually forecast to fall from 30.3% to somewhere around 28.1%-28.5% next year.   

-  Although many households have lost money during the pandemic, around half of households have saved more than ever before because their salaries and pensions have continued to be paid, but they have been unable to travel, buy a new car, entertain, eat out, go to the cinema or opera or even visit other people for much of the past two years. So this negative spending has simply accumulated in the bank accounts and by the end of Lockdown III was estimated to be £180bn. Some of this has already been spent, but much remains to support consumer spending in 2022 and thereafter.   

The Next Twelve Months

The economy has been growing very quickly, helped in part by a permissive national policy that rapid economic growth is needed to put the UK economy back on course and (eventually) pay down at least some of the borrowings required to sustain households and businesses during the progress of coronavirus. 

-  There are already signs of material shortages caused by the covid-induced recessions in each country, supply problems in China and knock-on effects from the silicon-chip shortages. We expect these to worsen. This is the prime reason why we expect retail sales in 2021 to grow by only 4.2%

-  Significant wage inflation is likely because of the shortages of many skilled and semi-skilled workers, partly caused by migrants returning to their home countries during the Lockdowns and well a stricter entry conditions to Brexit Britain. 

-  These factors suggest that price inflation may rise, but so far, this is not thought likely to create a signifcant jump in inflation requiring government or Bank intervention. 

It all depends of course on what happens internationally, but for now, government policy seems likely to be supportive of current demand growth - although interest rates will probably rise - which should permit retail expansion to at least the end of 2022.    


The Changing Structure of Demand and Supply

The pandemic has reduced the number of retail businesses, as seen in the demise of Arcadia and Debenhams and the reduced scope of Edinburgh Woollen Mill and prompted many store closures. There probably will be more to come after Christmas 2021. However this does create oportunities for new and existing retailers to grow their trade and become stronger. 

Fear of contagion from visiting large shops and city centres and the growth of working from home have both helped suburban or local shopping to some extent. In the first half of 2019, smaller retailers achieved growth of +6.3% over the previous year, but sales fell during Lockdown by -2.7% in 2020, H1. Many small shops were closed for much of 2020 because, even where they were 'essential' stores there was not enough business to make trading profitable. In the first half of 2021, small retailers' sales were 17.0% up on 2020,H1, (and +13.9% against 2019,H1). This may not contnue but it seems that currently conditions are very suitable for smaller businesses.  

Household projects have created opportunities for furnishings, household goods and hardware with household sales in 2021, H1, rising 28.0% compared to a fall of -8.8% in 2020. Hardware sales too have grown. Hardware sales fell by -6.2% in the first half of 2019, rose by only +0.7% in 2020, H1, but in the first half of 2021 have grown by +30.2%. 

Clothing sales have plummeted, caused by a combination of lower demand for formal or smart clothing, fewer 'events' and parties (nightclubs closed till August), and people working from home. In the first half of 2020, clothing sales fell by -33.3%. In 2021, H1, demand has returned by growth has only been +16.3% above 2020,H1, and sales overall have been 22.4% below 2019,H1.   

Foreign Travel

Our estimates for 2021 are based on the assumption that households will be able to travel abroad more freely and that foreign tourists can come here more easily. We think that there will still be tests, documentation etc needed for foreign travel, which may make short trips or city-breaks uneconomic. This should mean that more people go abroad in summer 2022 and that foreign tourists are once again welcomed to the UK.  

All economic forecasts are based on the use of accurate statistics, correct assumptions about the linkages between economic variables and accurate assumptions about future government behaviour, plus, in the current environment, consistent predictions about how the disease itself will perform. 

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