Higher wages and greater economic stability have improved consumer confidence, according to a report by KPMG and Retail Think Tank.
The health of the UK market improved by one index point to 81 in the first three months of the year, the highest level in three and a half years.
According to the report, retailers and consumers are unaffected by the uncertainty surrounding the outcome of thegeneral election in May. However, it backed up recent claims that shoppers are choosing to spend any savings made on energy and petrol costs on leisure services rather than retail products.
Consumers are feeling more relaxed, due to minimal economic policies being brought in ahead of the election campaign season. The report found retailers were seeking to take advantage of this, with increased discounting tactics.
Retail Think Tank warned that the fashion sector will need to be “smarter in the future” to respond to unseasonal weather conditions, to avoid early discounting of its seasonal collections.
It said consumers will continue to feel the benefits of lower costs throughout the second quarter of the year. Discounting is expected to continue across the fashion and grocery sectors.
The current strength of the economy is set to carry on until the start of the third quarter (July), when the value of the pound is likely to vary, impacting retailers’ costs. Operating costs are also expected to rise due to increased discussions on employers meeting the living wage later in the year.
David McCorquodale, UK head of retail at KPMG, said: “Increased demand was the driving force behind the improvement in retail’s health in the last quarter, and this is reflected in the volume of sales. Despite the increase in demand, total retail spending has, however, been relatively flat due to price deflation and Black Friday appearing to impact the January sales.”
Maureen Hinton, group research director from retail analyst firm Conlumino, added: “The general election is unlikely to have any impact on consumer confidence levels, particularly in the short term. Current high street prices are the result of buying that took place when the pound was particularly strong. These savings have filtered through making prices more affordable and helping shoppers feel they are getting better value, especially in fashion.”