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A high spending Christmas – but what else lies in store for SMEs in the business?

5th December 2018 Print

The UK’s retail sector has endured a turbulent 2018, with an average of 14 shops having closed every single day during the last 12 months. 

While retailers may have hoped that Black Friday would have helped to revive their fortunes, however, the recent data suggests that this was not the case. According to the advisory firm BDO, like-for-like sales at bricks-and-mortar retailers flatlined during this 24-hour period, with growth peaking at just 0.5%.

With Christmas on the horizon, however, retailers’ retain hope that they could still end 2018 on a high. But is this likely to be the case, and what else lies in store for small businesses in the near-term?

1. Will Consumers Spend More this Christmas?

On average, UK consumers are expected to spend more than £2,000 each in the build-up to Christmas, although it’s interesting to note that this amount includes the cash spent on Black Friday.

This may set alarm bells ringing for retailers, thanks to a change in consumer behaviour that has seen customers spend a larger percentage of their cash during November. In fact, 2017 saw November sales outstrip December’s volumes for this first time, with consumers increasingly likely to leverage Black Friday in the quest for cut-price deals.

With this year’s Black Friday figures having disappointed, however, it’s little wonder that retailers remain cautious about consumer spending for the remainder of the festive period.

However, brands can always bank on customers spending significant sums of cash in the build-up to Christmas, and this should at least provide some relief from a harsh economic climate.

2. Is the Rate of Consumer Borrowing Declining? 

Consumer borrowing will have a significant impact on the total Christmas spend, as customers typically fund several of their purchases using a credit card.

However, unsecured household borrowing of this type has seen a significant slowdown of late, recording its weakest level of annual growth in more than three years. This includes credit card use and  the demand for service providers such as Likely Loans, with consumers seeming to adopt an increasingly conservative approach in a challenging economic climate.

While the rate of growth in this space may have declined by 0.4% between September and October, however, consumer credit still increased by 7.5% year-on-year

Overall, this means that consumer credit may well remain high enough to drive festive spending in December, although it’s also likely to decline throughout the first quarter of 2019.

3. How will Brexit hit Retailers?

It can be argued that Brexit has already impacted negatively on retailers and small businesses, with a weak pound increasing the cost of imports and consumer confidence fluctuating wildly over the course of the year.

On a fundamental level, this is one of the primary reasons why small business sentiment remains so low in the UK. This metric decreased to -18 during the current quarter, after peaking at a relatively healthy 6 between July and September.

Incredibly, the level of uncertainty has increased even as the UK’s departure date from the EU draws closers, with Theresa May continuing to threaten the prospect of leaving without a deal as her own withdrawal bill comes under increased fire. 

This would obviously be disastrous, but even exiting under the terms of May’s agreement could shave up to 5% off the nation’s GDP by 2030. As a result, SMEs will undoubtedly continue to feel the adverse effects of Brexit well into 2019, regardless of their size or the actual market that they operate in.