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Market Commentary

​​Weekly Retail & Leisure News - 23 February, 2015

Asda to intensify expansion plans, as low inflation boosts spending power

Asda is to invest £600m in its real estate portfolio, despite going through "one of its most challenging and changeable periods in history". Asda announced last week that for the three months to January 4, LFLs fell 2.6%. This has not, however, impacted on the grocer's expansion plans for 2015; it is set to open six large superstores, 11 supermarkets and 36 petrol station outlets and more than 150 new click-and-collect points. The retailer's expansion plans are in sharp contrast to its major rivals; Tesco is shutting stores and selling off development sites, and Sainsbury's and Morrisons are also reining in their expansion plans.

It was also announced last week that UK inflation dropped to a record low of 0.3% in January, according to the ONS. Falling fuel prices and supermarket price wars have contributed to the slow-down in the rate of inflation. Jon Neale, Head of UK Research at JLL commented: "Inflation is reaching lows not seen since the early 1960s. Understandably this is stoking fears that the UK could be facing deflation and indeed Mark Carney has indicated that he expects the CPI figure to fall below zero sometime in the spring."

However, low inflation rates have helped boost household spending power for UK consumers to its highest level in four years. The UK's labour market also remains robust, with falling unemployment starting to feed through to better wage outcomes. Both these factors have resulted in the Lloyds Bank's 'spending power' gauge rising to an all-time high level of 154 points in January.

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