Looking ahead, retail sales likely will jump shortly after all non-essential shops reopen on April 12 and probably will surpass October’s peak in May. The recovery in GfK’s composite index of consumers’ confidence this month to its highest level in a year is a positive sign that the vaccination programme has lifted spirits. Nonetheless, most continuously-employed workers will be no better off this year than in 2020.
The median pay settlement has declined to 1% this year, from 2.5% pre-Covid, according to XpertHR, while the National Living Wage will rise by just 2.2% in April, the least since 2013. By contrast, consumer price inflation looks set to average 1.6% this year, up from 0.9% in 2020. Furthermore, the tax take from wages will rise this year, given that the income tax personal allowance will increase in April by just 0.5% to £12,570.
Households probably also will prioritise consuming services when businesses reopen and will reallocate funds that recently have been spent on goods. Accordingly, the recovery in retail sales probably will fall flat, after an initial surge when shops reopen. We think sales volumes will be only about 3% above their 2019 level this year.