Compensation pay-outs totalling more than £88 billion will help boost high street spending in the run-up to Christmas, analysts have predicted.
The forecast of a 2.2 per cent rise in retail spending during the last three months of the year is attributed to improving consumer confidence, as well as one-off factors such as pay-outs over payment protection insurance (PPI).
Banks have been forced to set aside billions to compensate customers who may have been sold PPI products they did not need, and according to Verdict analysts it is one of the factors that will help consumers feel more confident about spending.
Another factor is the Royal Mail share flotation – which has already seen nearly 700,000 ordinary retail investors see the value of their stakes rise by hundreds of pounds.
Improving consumer confidence and job creation, along with a pick-up in the housing market, were among the other reasons cited by Verdict.
The rise predicted by Verdict represents an extra £1.95bn for retailers to compete for in the run-up to Christmas.
It has led the prediction British retailers will enjoy their best growth in Christmas sales since the financial crisis.
“Consumer confidence drives spending and shoppers have far more reasons to be cheerful this year,” the analysts’ report said.
“The economic news is more positive; the housing market is moving with further initiatives being introduced to encourage buying.
“Job creation is outpacing cuts; and though PPI refunds and the Post Office float do not affect everyone, they have a further halo effect of boosting the view that at last things are getting better.”
Verdict research director Maureen Hinton said that in addition, a recession baby boom meant there was growing Christmas spending on children’s spending.
The report said food would be the main focus for Christmas spending this year, but non-food sectors would also recover, including an upturn in furniture, DIY and gardening after years of decline.
Food continued to be mainly driven by inflation, though volumes would be up too.
Discounting is expected to be widespread in non-food sectors, which will also see increasing volumes and total sales lifting by £600 million.
Verdict, which specialises in retail analysis, predicted the total spend would include £52bn on non-food items and £36.4bn on food and grocery.
The organisation’s researchers also told how they believed online sales are forecast to rise 12 per cent to £11.6 bn, in their predictions released yesterday.
They forecast a surge in online spending this year because Christmas Day falls on a Wednesday which will mean consumers can use retailers’ online “click & collect” services to pick up goods ordered online in stores convenient to them as late as 23 December.
Verdict forecasts spending in the fourth quarter would rise 2.2 per cent from the same period in 2012 to £88.4bn – the best since 2007 when fourth-quarter spending grew 3.1 per cent to £82.4bn.
Government data indicates the outlook is improving for UK consumer spending, which generates about two-thirds of gross domestic product, but retailers are still wary as inflation continues to outpace wage rises.