Looking in depth at the UK economy, this report from Webloyalty and Conlumino reveals predictions for the Easter break. This report is not just interesting for the general public, but provides an insight for retailers around this season.

1. Economic update
Current state of retail economy
2014

2. Economic update
Page
5
2014
Looking ahead ... Easter
March 2014
© 2014 Webloyalty & Conlumino
enquiries@webloyalty.co.uk | 020 7291 8720
The economy and consumer sentiment
Auspicious signs
Following one of the longest and deepest recessions on record,
signs of recovery, however modest, are extremely welcome.
Certainly the early stages of 2014 have already shown up some
auspicious indicators with falling levels of unemployment, rising
GDP and even a long-awaited slowdown in inflation. Indeed the
Office for Budget Responsibility (OBR) forecasts GDP growth of
2.4% for 2014, although real GDP is still 2% below its 2008 peak.
An unbalanced economy?
The UK economy grew by 0.7% in the third quarter of 2013,
making it one of the fastest growing of the major world
economies. Nevertheless, fears remain that the recovery is an
unbalanced one, over-reliant on consumer spending, fuelled by
unsustainable house price growth and financed by a sharp fall in
the savings rate.
Falling productivity
In August 2013, the Bank of England’s Monetary Policy
Committee stated that it would not raise interest rates until the
unemployment rate fell below 7%. It was assumed that this would
not occur until at least 2016, an assumption that was based on the
notion that growth would be driven by improving productivity.
However, stubbornly high inflation and the rapid fall in
unemployment, to 7.1% in January this year, suggest that in fact
productivity has weakened.
It is in part this lack of productivity that explains why the UK
has experienced such stagnant growth in real wages, leading
to one of the longest declines in living standards in 60 years.
Low productivity is especially worrying as it could result in the
recovery running out of steam thanks either to a spiralling
burden of debt or the BOE being forced to raise interest rates to
head off the pressure of inflation. The latter in particular
would have an immediate dampening effect on retail spending
growth.
Current account deficit worryingly high
Further cause for concern comes in the form of the UK’s poor
performance in the export market. A current account deficit of
5% of GDP suggests that import spending greatly exceeds
exports; a trend that is both unsustainable in the long term
and could lead to the devaluation of the pound. The challenge
facing the UK economy lies in rebalancing the recovery away
from consumer spending by boosting export growth. There are
signs that exports to emerging markets are on the increase
though the UK still lags behind many other Western European
economies in this regard.
Over the next few pages we will take a more in depth look at
some of the key issues in the UK economy and consumer
sentiment and how they are likely to impact upon retail.
Signs of modest recovery but there are likely to be bumps in the road ahead
Positive indicators may be masking the true state of the UK economy as fears emerge over an unbalanced recovery

3. Economic update
Page
6
2014
Looking ahead ... Easter
March 2014
© 2014 Webloyalty & Conlumino
enquiries@webloyalty.co.uk | 020 7291 8720
The economy and consumer sentiment
With wage growth remaining stagnant during the
recession, rising inflation levels have placed a significant
strain on consumer finances.
Persistently high inflation in the cost of living, particularly
in areas such as household utility bills has eroded
household budgets to such an extent that retailers are
having to discount heavily to stimulate demand. In
January the BRC unveiled figures which showed that shop
prices had fallen for the ninth consecutive month with the
sharpest rate of deflation since December 2006.
Furniture, clothing and electricals all witnessed
significant price softening while even in the food sector,
which has spearheaded retail inflation in recent years, the
rate of inflation slowed down.
What does it mean?
Stable commodity prices and favourable forecasts
going forward are helping retailers to keep prices
down, but until the economic recovery filters
through fully to the level of consumer finances
and the cost of living begins to fall, retailers are
likely to have to continue to take a hit on their
margins .
In the grocery sector falling consumer loyalty and a
greater propensity for consumers to shop around in
search of the best deal is forcing more established retailers
to re-evaluate their proposition in the face of rising
competition. Last year Tesco unveiled its vision for the
future of big box retail, while Asda will attempt to combat
its lack of physical presence in the convenience market
with an ambitious strategy to broaden its click & collect
offer.
As the high street comes under increasing threat from
online retailers, Argos is busily undergoing its
transformation to a digital retailer, whilst across the board
retailers are beefing up their multichannel competencies.
Retailers, like Dunelm, are also looking at greater direct
sourcing and better space management to boost flagging
margins.
What does it mean?
In the context of this squeeze on consumer
finances, retailers are finding volume growth to be
an elusive commodity. As the fight for consumer
spend becomes increasingly hard fought, this in
turn is fuelling innovation.
Shop price deflation as retailers compete
to stimulate demand.
A competitive market is forcing retailers to
innovate.

4. Economic update
Page
7
2014
Looking ahead ... Easter
March 2014
© 2014 Webloyalty & Conlumino
enquiries@webloyalty.co.uk | 020 7291 8720
The economy and consumer sentiment
In comparison with the recent slowdown, the housing
market is buoyant: 2013 saw a considerable rise in
mortgage transactions in an indication both of strong
demand and a willingness of banks to provide finance,
while house prices have risen nearly 8%.
The strength of the housing market is also its biggest
weakness, however, with real fears that rising prices are
causing many properties to be unaffordable, particularly
in regions of persistently high demand such as London
and the South East. There are warnings that the price rises
are unsustainable with the government’s Help to Buy
scheme fuelling a housing bubble, while interest from
wealthy foreign investors in the London property market
may be propping up prices.
What does it mean?
Greater momentum in the housing market should
provide a long-awaited boost for home and
furniture retailers that have been particularly
hard hit by the recession. While this has
inevitably been helpful, the pace of housing
growth in many regions remains sluggish by
historic standards.
In January this year UK unemployment fell to 7.1%, close
to the threshold at which the Bank of England has
suggested it would raise interest rates.
There are concerns though that the manner in which this
low rate of unemployment has been achieved owes much
to a rise in part-time employment and the popularity of
temporary contracts, whilst at the same time there is a
generally higher level of job insecurity in the market
together with falling productivity.
Added to this, the pattern of falling unemployment is far
from uniform and pockets of high unemployment are
particularly prevalent in the North of England, the inner
cities and amongst young people.
What does it mean?
It may be a flexible labour market that has led to
the rapid fall in unemployment but jobs are still
jobs and higher rates of employment will boost
household incomes and improve consumer
sentiment. Worryingly low levels of productivity
mean that wage growth remains sluggish,
however.
Housing market momentum, but fears of a
house price bubble.
A dramatic fall in unemployment, but is
that the whole story?

5. Economic update
Page
8
2014
Looking ahead ... Easter
March 2014
© 2014 Webloyalty & Conlumino
enquiries@webloyalty.co.uk | 020 7291 8720
The economy and consumer sentiment
Key economic indicators
2014 compared to 2013
Economic
indicators
2013 2014
Gross Domestic
Product growth (%)
1.4% 2.4%
Since the end of 2012, the economy has shown some signs of life with modest GDP growth
and a rise in consumer sentiment. While this appears to be sustainable, and is welcome, the
magnitude of the pick-up is shallow.
Unemployment (ILO
definition – Q4 %)
7.6% 7.1%
Despite pressures on government expenditure having a negative impact on public sector
employment, there are signs that, for the time being at least, the private sector is largely
picking up the slack.
Inflation (CPI – annual
%)
2.6% 2.4%
Persistently high inflation, particularly for food and energy, which represent such a significant
proportion of overall consumer expenditure, will continue to put household budgets under
pressure.
Interest rates 0.5% 0.5%
With the recovery looking shallow, interest rates are highly likely to remain stable for the
foreseeable future.
Disposable income -0.2% 0.3%
While wage growth continues to pick up, disposable incomes continue to be held back by
high inflation.

6. Economic update
Page
9
2014
Looking ahead ... Easter
March 2014
© 2014 Webloyalty & Conlumino
enquiries@webloyalty.co.uk | 020 7291 8720
The economy and consumer sentiment
• However, views on personal financial circumstances have not
fared quite so well. Notably, in recent months, views on the
overall economy have become stronger than views on
personal financial circumstances. This is a reversal of the
position we have seen during most of the downturn.
• There are numerous factors making consumers less certain
about their personal finances. Foremost among these is high
inflation which is squeezing disposable incomes.
-32.1
-53.4 -51.3
-48.3
-40.8 -39.2 -37.7
-20.9
-36.9 -37.8
-45.0 -43.9 -43.1
-28.0 -26.0
-28.8
-6.0 -7.3 -9.2
-3.5
-6.3
-2.0
7.1
-14.3
-31.4 -29.3 -30.7
-27.7
-23.3 -25.3
-21.0
-27.9 -28.7 -29.0
-32.0
-29.6
-24.9
-22.0 -24.0
-17.3 -19.5 -19.9
-18.6 -21.0 -18.6
-10.7
-60
-50
-40
-30
-20
-10
0
10
20
• Aside from more general economic indicators, one of the most
important considerations in terms of the future strength of retail
is how the consumer feels.
• Positively, views on the future of the overall economy have seen
some solid improvements over the past few months. This outlook
has been fuelled by the more affluent regions and higher social
classes in particular.
Consumer sentiment swings to positive
Personal finance continues to be a concern
Consumer confidence index
All figures are an index created by taking those who say things will improve and subtracting those who think things will get worse
Index on personal finances: how do you think your own personal financial circumstances will change over the next 6 months?
Index on the general economy: how do you think the economy will change over the next 6 months?

7. Economic update
Page
10
2014
Looking ahead ... Easter
March 2014
© 2014 Webloyalty & Conlumino
enquiries@webloyalty.co.uk | 020 7291 8720
The economy and consumer sentiment
UK’s North South divide shows in consumer confidence
Views by demographics and region
While overall consumer sentiment now finds itself in positive territory,
it is men as a whole who are driving this consensus with their more
positive outlook on the economy. Conversely women, who are
traditionally more involved with more non-discretionary purchases,
are notably more pessimistic about the economic future.
Affluent consumers have a much greater positive economic outlook
than those people with less. The latter will be experiencing a much
tighter squeeze on their disposable income, as their levels of
discretionary purchases are expected to rise.
There are also strong regional differences in future economic outlooks.
Unsurprisingly, regions associated with tougher macro-economic
climates are less optimistic. The South has higher levels of disposable
income, and non-discretionary purchases will affect them less, leading
to more positive economic projections.
Gender
Affluent and not so affluent
Region
Women
-2.5
Men
+18.4
DE*
-0.8
C1+C2*
+10.7
AB*
+20.4
+4.0
North
West
+12.2
London
+13.2
South East
+11.9
South
West
-17.2
North East
Despite the overall economic outlook being quite positive, the
view is not universal. Here we take a closer look at consumer
sentiment across a range of demographics.
All numbers refer to the overall economic index; the average score for views on the
future of the general economy in January. The overall average index for this is +7.1.
A High managerial administrative or professional
B Intermediate managerial administrative or professional
C1 Supervisory clerical and junior managerial administrative and professional
C2 Skilled manual workers
D Semi and unskilled manual workers
E State pensioners, casual or lowest grade workers and unemployed
*

8. Economic update
Page
11
2014
Looking ahead ... Easter
March 2014
© 2014 Webloyalty & Conlumino
enquiries@webloyalty.co.uk | 020 7291 8720
The economy and consumer sentiment
• One of the factors weighing negatively on
consumers’ minds when it comes to personal
financial circumstances is the prospect of future
inflation.
• The large majority of consumers still believe
that many, non-discretionary areas of spend
(like utility bills and food) will rise sharply in
the next six months.
• This expected rise in essential living costs will
inevitably erode disposable income. It is no
surprise that consumers’ views on future
personal finances are relatively bleak.
• Although consumers are less pessimistic about
discretionary areas of spend, such as electronic
gadgets and homewares, they still believe that
these things will be generally inflationary.
5.4
Petrol or
diesel
Food
Clothing
Electronic
gadgets
Homewares
54.9
3.1 63.5
5.7 30.9
11.3 25.7
4.7 24.1
Expecting
a fall (%)
Expecting
a rise (%)
Household
utility bills
2.9 66.4
-49.5
-60.4
-25.2
-14.4
-19.4
Net
difference
-63.5
Personal circumstances still weigh negatively on consumers’ minds
The squeeze continues
Percentages of consumers expecting a rise and fall in prices across certain products and
services over the next six months.