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Market Commentary

Weekly Retail & Leisure News - 11​​ July​​​, 2016​​​​​​​​​​​​​​​​​

Brexit: Modest short-term slowdown forecast for UK economy

A post Brexit update by Oxford Economics indicates that UK economic growth will slow this year and next, but this deceleration is expected to be modest and will be followed by a recovery over the longer term. According to Andrew Burrell, Head of Economics & Forecasting, JLL EMEA, “While the current uncertainty brings risks, the UK economy is in better shape than in the past. Certainly in relation to the Global Financial Crisis (GFC), the UK economy is considerably less vulnerable now after a prolonged adjustment in balance sheets. Households have reduced their debts to more sustainable levels. Recapitalised domestic banks are now in far better shape following several years of consolidation. And the government, which previously developed a huge deficit as a result of the bail-outs and the recession, has brought this back under control following several years of austerity.”

Consumer confidence has been hit hard in the wake of the EU referendum result, with shopper sentiment falling eight points between June 30 and July 5, according to a one-off GfK Consumer Confidence Index measuring the immediate impact of the vote. However, we expect this to be a temporary fall, and predominantly a result of the post-referendum shock and the current political uncertainty, rather than the economic situation. The expected reduction in interest rates and a fall in the cost of mortgage debt financing will provide some respite to UK shoppers in the short-term.

Retailer results released post-Brexit continue the theme of winners and losers within the Retail sector, which predated the Brexit vote. Primark saw total sales growth of 7% in the 40 weeks to 18 June, driven by 11 new store openings. In contrast, Marks & Spencer UK LFLs fell 4.3% in the quarter to July 2, with clothing sales down 8.9%. M&S blamed a ‘weak market,’ as consumer confidence was hit ahead of the EU referendum, as well as moves to cut promotions and shift its summer sale into July. The only indicator of post-Brexit consumer behaviour has been provided by John Lewis, which recorded sales growth slowing to 2.1% in the week to July 2, compared with 7.3% the previous week, and 4.8% in the same week last year. Sales at Waitrose fell 2.8%, compared with the prior week’s 0.7% decrease. The extent to which Brexit is responsible for these and other retailer trading results is open to debate. In fact, one of the challenges faced by the industry post-Brexit will be to isolate the impact of the vote from existing, underlying trading patterns, resulting from the ongoing structural change within the Retail industry.

Click here to download our latest report that summarises the potential impact of Brexit on the UK Retail market.

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