Influence of
factor in 2007 on:
Factor Demand Margins
Summary Retail demand will be slightly stronger in 2007 than 2006. Consumer confidence has been boosted by falls in the price of petrol and a pick up in the housing market. With the wider economy growing healthily, employment and earnings will also gain ground, lifting disposable income and consumers’ retail expenditure. However the recovery could easily be derailed if US economic growth deteriorates or if inflationary pressures necessitate more than the expected one additional interest rate rise. Though retailers will benefit from lower operating cost inflation and a strong pound, the need for them to limit price rises will provide little relief to margins.
GDP Despite the recent increase in interest rates prospects are still promising for 2007 and GDP should grow by 2.9%, up from 2.7% in 2006. A fall in oil prices has made consumers feel better off and eased cost price inflation for businesses. Renewed house price inflation and equity prices look set to further underpin consumer confidence. Nonetheless risks to the economy remain – in particular a slowdown in the US could impact investment and exports in the UK. –
Earnings / Disposable Income Rising inflation has put upward pressure on wage settlements, while improved corporate performance has led to a record round of City bonuses. In 2007 earnings growth will reach 5.1%, its highest for nine years, representing a major opportunity for retailers. Real household disposable income will be lifted by a fall in petrol prices, though this gain will be coun ...