UK consumers are reluctant to splurge on big-ticket items amid economic uncertainty

The situation: Two key indicators suggest a challenging holiday season for UK retailers.

• A struggling economy: UK GDP slipped 0.1% in October, falling short of analysts' expectations for a 0.1% gain and the second consecutive month of decline, per the Office for National Statistics. The UK economy has grown in just one of the four months since Labour took power.
• Gloomy consumers: UK consumer confidence edged up just one point to -17 in December, barely above the year’s average, per GfK. While personal finance sentiment turned positive for the first time since August, the major purchases index held at -16, signaling shoppers' reluctance to spend on big-ticket items like furniture and electronics.

These trends align with retail data showing footfall fell for the second consecutive month in November, weighed down by poor weather and a later-than-usual Black Friday.

More challenges ahead: The UK retail landscape looks bleak.

• Consumers are grappling with a cooling job market and rising mortgage and energy costs. Retailers, meanwhile, face shrinking margins due to the UK’s latest budget and government policies.
• Several companies, including Currys, Sainsbury’s, and Marks & Spencer, have already signaled price hikes in response to rising payroll taxes and the increased National Living Wage.

Our take: While UK consumers are spending judiciously this holiday season, we still expect UK holiday retail sales to grow 4.2% this year.

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