On a freezing Saturday in January, London’s Oxford Street was heaving. Queues in Primark snaked around the store, Zara had few of its wide-legged jeans left and Charlotte Tilbury’s cosmetics counters were mobbed. It was a similar picture a week later at the Westfield shopping center in Stratford, East London, where walkways were so crowded it was hard to move along.

And it wasn’t just tourists spending. Brits have been out shopping and dining, too.

The scenes were at odds with predictions — including my own — that after a last hurrah at Christmas, consumers would tighten their purse strings, making a dismal period for retailers and restaurants. Indeed, on Tuesday, the British Retail Consortium and KPMG said that total UK retail sales rose by only 4.2% year-on-year in January, around half the pace of December.

But January is always a lean month. What if the rest of the year is not quite so bad?

For a start, inflation, one of the main components of the cost-of-living crisis, may be peaking. European gas prices have fallen more than 20% so far this year thanks to alternative supplies to Russian shipments, as well as energy-saving efforts and a warm winter.

While grocery inflation hit a record 16.7% in January, according to data provider Kantar, Ken Murphy, chief executive officer of Tesco Plc, said he was hopeful that price increases would start to taper off by the middle of the year. A United Nations index of food-commodity costs fell for a 10th straight month in January. The gauge has slipped about 18% from a record last March, when Russia’s invasion of Ukraine disrupted crop flows from the major supplier.

It will take time for this to filter through to the weekly shop. But watch for more special offers from the big-branded manufacturers, such as Nestle SA, as they try to stimulate sales.

And it’s not just food prices that may soon stabilize. Next Plc estimates that price tags for its clothing and home furnishings will increase by 6% in the autumn, after the current 8% surge for sweaters and sofas in stores. While sterling devaluation will make garments more expensive, this is being offset by falling freight rates and factories hungrier for orders. If the recovery in sterling since its low last autumn continues, and the retailer is able to negotiate competitive deals with suppliers, then the increases might be even lower this time next year.

The better outlook isn’t confined to inflation either. Mortgage rates have already come down from their November high. It looks increasingly likely that the upward trajectory for interest rates is coming to an end. The Bank of England is expected to hike again at its next meeting on March 23, but money markets now believe that to be the final move for the year, and only by 25 basis points.

Meanwhile, wages are on the up even as inflation outstrips awards. If pay packets continue to expand — the National Living Wage will rise almost 10% in April — and inflation moderates, that should alleviate some strain on household budgets. Add in strong employment and house prices that are falling but not collapsing— two factors that significantly affect consumer behavior — and there’s good reason to think that demand should hold up.  

Of course, we still face sliding into recession, although the Bank of England now expects this to be shallower. Brits — particularly the more affluent — lost out on the tax cuts dangled in front of them last autumn, although many still have savings. But people having to pay for private hip and knee replacements because of long NHS waiting lists is another invisible drag on spending power.

There is also a risk that the jobs market deteriorates more than expected or that inflation proves stickier. The impact from China’s reopening is the next factor to watch. But if these hazards can be avoided, the doomsday scenario that many investors have been factoring in might not materialize. Indeed, retailers’ share prices have risen this year on such hope.

The greater comfort won’t find its way into stores and leisure businesses equally, though.

Travel is poised to remain a consumer priority. Ryanair Holdings Plc said recently that bookings were holding up, driving fares higher. That’s not just another wrinkle in the inflation story; it could also mean that any extra household cash gets funneled into holidays as opposed to a new car, or home makeover. When I was shopping in Stratford, I saw few people browsing sofas in the John Lewis furniture department.

Clothing, too, might suffer. Fashion has had its best run for years as Brits swapped their Covid sweatpants for smart suits and dresses to go back to work and to events. Will they make do with those same outfits this year?

Even with these caveats, the consumer backdrop is looking more promising than it did just a few weeks ago. It’s still a long way off, but Christmas 2023 might not turn out to be such a nightmare after all.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.

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