Think-tank warning of tough times for home retailers

Supermarkets and household retailers will be faced with a"challenging consumer environment" and falling sales this year,according to a forecast by the Centre for Economics and BusinessResearch (CEBR).

Douglas McWilliams, the think-tank's chief executive, alsobranded the coalition government's January's hike in VAT a "policyerror" that will tighten household budgets further and add toinflationary pressures.

He speculated that the Bank of England may raise interest ratesby half a percentage point next month in the face of a weak economicoutlook for 2011 and early 2012.

McWilliams said: "In retrospect, although the cuts in publicspending that are taking place are necessary and some of theirimplications exaggerated, the VAT rise last month now looks to be apolicy error that has added to inflationary pressures at the sametime as cutting disposable incomes.

"Mrs Thatcher made the same mistake in 1979 and would probablyhave been remembered in history as a failure had General Galtierinot invaded the Falklands and provided her with a successful warwhich was the springboard to an election victory. Where is DavidCameron's General Galtieri?"

The study predicts that supermarket and household goods saleswill fall by around 0.2 per cent and 2.1 per cent respectively in2011, as January's VAT increase and rising food and clothing prices,coupled with a squeeze on household income, cause a dip in consumerspending.

The report's author, economist Shehan Mohamed, said: "Uncertainjob prospects, weak income growth and an increasingly inflationaryenvironment will make 2011 a tough year for the UK consumer."

He said tight credit conditions and falls in housing equitywithdrawals since the credit crunch were expected to reducediscretionary expenditure.

"Household retailers selling furniture and electrical goods willsee tough times ahead as consumers shy away from making majorpurchases," he added.

"A low-transacting housing market over the next few years willfurther dampen demand for household goods."

The report predicts internet retail will continue to grow asfirms look to reduce overheads and consumers search for better valuefor money. CEBR expects internet sales to reach GBP32.3 billion by2015, accounting for 13 per cent of the UK retail sector, up fromGBP22.9bn in 2010.