Increasing prices will hurt the retail sector in 2018, according to this think tank

 
Caitlin Morrison
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Rising prices in 2018 will hit the retail sector (Source: Getty)

The retail sector will "flatline at best" next year, according to predictions issued by the KPMG/Ipsos Retail Think Tank (RTT).

The group made its lacklustre forecast based on a combination of "continued headwinds in the form of geopolitical and macroeconomic obstacles; an increased number of regulatory compliance issues and ongoing structural change within the industry".

However, it's consumer spending that will be the key area of weakness for the sector. The RTT members warned disposable income will be squeezed by stagnant wage growth and elevated inflation, although real incomes are expected to improve in the second-half of 2018 - but before that happens, the divide between food and non-food retail is expected to become more pronounced, with non-food sales dented by inflated food prices.

The RTT said: "This ‘perfect storm’ of factors may even see the industry reach a pivotal point in 2018, with increased levels of defensive consolidation and creative collaboration - as well as the inevitable fall out of casualties - the likely outcome in the ongoing fight to survive."

The think tank members also said they expect to see close correlation between the outcome of Brexit negotiations and the overall health of the industry, with a ‘soft’ Brexit resulting in meagre growth, and a ‘hard’ Brexit potentially seeing the market contract.

"Continued uncertainty around Brexit and its implications is undoubtedly affecting consumer confidence, which is clearly on the wane," said Martin Newman, chief executive of e-commerce consultancy Practicology.

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