The Bank of England has predicted that the United Kingdom is falling into a prolonged recession, with inflation not expected to return to its target level of 2% until 2024.

Here we will discuss the retail sector outlook this year and what investors should expect.

Retail Conditions

Inflation in the UK currently sits around 10%, the highest rate in 40 years. The significant inflation rate increases are already impacting living standards across Britain. The UK is not alone, and according to the IMF, one-third of the globe is set to fall into a recession this year. Unsurprisingly, retail sales are predicted to struggle this year, with discretionary and leisure items being more negatively impacted than others.

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The recession has already started to impact shopping behaviour, which will continue for much of this year. When analysing market conditions, however, other factors need to be taken into consideration, including the geo-political climate and weather conditions.

Source  Pixabay

For example, supermarket retailers saw a growth of 10.9% in December, with consumers stocking up for the holiday season and people spending less out and about. Sainsbury’s  (SBRY.L) saw the most significant gains, with sales up 8.5%, and Tesco (TSCO.L) not far behind with 8.0% sales growth over the period. Market research shows retail food sales are expected to grow by around 5% in 2023.

Non-food retail was significantly down in 2022 when compared with 2019 figures. For example, textiles, clothing and footwear sales were down from 2019 but slightly up compared to 2021 sales volumes. Online retail sales saw considerable increases in 2020 and 2021, although volumes fell in 2022 and are expected to fall further this year. Another factor impacting the retail sector has been disruption to supply gains, significantly affected by China, one of the most influential drivers of economic growth. 

Whether sticking with retail or preferring other investment options such as FX, when facing the current volatile conditions, many investors prefer CFD or forex demo accounts, for example, which means that traders can speculate on price moves and have a chance to test strategies without owning the underlying asset.

Market Conditions 2023

Thanks to the oil & gas and banking sectors, the FTSE 100 outperformed other indices in 2022. Although there is clearly going to be a volatile year for the industry, most retail investors are confident that things will start to rebound by the end of the year. A recent survey found that only 1% of retail traders will move away from retail, and 29% plan on adding to diversified portfolios. 

source: Pixabay

Although domestically focused companies are less appealing, traders and investors are predicted to back individual BigTech stocks, like Apple and Meta. Investors should also keep in mind that the recession has already been largely priced into the market. Retail investors are also looking to overseas markets for opportunities, including gold, government debt, and emerging markets. For example, gold outperformed bonds in 2022. The US market is also appealing and is set to rebound from the recession before other economies.