We have noticed you are visiting from

United States

Would you like to navigate to our US Website?

The Impact of Brexit on Retail

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us.” One could be forgiven for thinking that these words were written about the years leading up to Brexit, rather the French Revolution. The harsh reality is that we still have little idea of how negotiations between the UK government and the EU will end up.

This interim period of uncertainty has already impacted retailing. Real earnings turned negative in February 2017 and are likely to remain so for the year ahead, thanks to inflation exceeding wage growth. Unsecured debt is now a burden for 10% of households.

Headline consumer confidence was negative for the whole of last year. The downward pressure on consumer spending has hit the retail sector hard, particularly in the non-food sector, where the BRC and KPMG recorded flat sales for 2017 and our Retail Traffic Index registered a 4.7% decline in store footfall for the year. The KPMG/Ipsos Retail Health Index finished 2017 3 points down on the year. Its worst annual decline since 2012, and there is little reason to expect fortunes to be much different in 2018.

The final outcome of the negotiations will inevitably impact retailing further. In quite which specific areas and to what extent is difficult to say, until the talks are concluded, or otherwise. With my glass half empty, wherever we end up, I can only foresee prices increasing for consumers given our current dependency on trading with the EU. Sterling is some 14% below its value pre-referendum, the possibility of tariffs, changes to customs regulations and a shortage of labour all threaten to raise costs further, with a shift in VAT rules potentially also forming part of the mix.

Any rise in consumer prices will affect households with less disposable income the most, so any damage to footfall and spend will be felt regionally. The worst affected will be in Northern Ireland, North East England, Yorkshire & Humberside and Wales, where incomes are over 15% down on the national average.

Can there be a positive impact of Brexit on retail?

With my glass half full though, I see plenty of opportunity to get behind British farmers, producers and manufacturers if negotiations to go against us being part of “a/the” single market or the customs’ union are passed. This could fuel a cultural and retail renaissance, the like of which has not been seen since the ‘60s.

In the immediate future we need to start seeing some progress towards a transitional stage of clarity, so that retailers can start planning their paths ahead rather than be stuck in a quagmire of uncertainty and indecision.

By Dr Tim Denison, Director of Retail Intelligence at Ipsos Retail Performance

Click here for the latest retail news, reseach and economic coverage in the UK and to download our monthly Retail Insights Pack.