Consumer Outlook: navigating economic trends and preparing for 2025

19 December 2024

Our Head of the Consumer Sector, Matt Dalton, sits down with George Lagarias, Chief Economist, to discuss the current economic landscape and its implications for the retail industry.

In one of our previous articles, we looked at the top trends for consumer businesses in 2025. This interview explores other key topics such as the health of the UK and US economies, consumer confidence, and the potential impacts of geopolitical events like the US elections on global trade. The conversation also covers the importance of strategic planning for CFOs and the need for businesses to adapt to a volatile economic environment.

Economic trends

The UK and US economies are performing well, with liquid markets and lower interest rates. This has led to increased consumer savings and spending, reflecting optimism in consumption patterns. The UK, with its service-driven economy, may be less affected by supply chain disruptions compared to more industrial economies like Germany. However, the UK's growth rate is projected to be modest.

Following the announcements of the Autumn Budget, changes in national insurance and minimum wage could initially shrink retailer margins but are likely to be passed on to consumers. Deregulation of the banking system could drive significant economic growth.

Impact of the US election on the UK and the rest of the world

US elections introduce uncertainty, particularly regarding tariffs which could disrupt global supply chains and cause inflation. However, consumers typically react to immediate financial impacts rather than anticipating future economic changes.

Despite China facing long-term economic challenges, they are stimulating their economy. The geopolitical shift could provide opportunities for China to expand its markets, especially if Europe faces difficulties trading with the US.

Retailers' priorities for 2025

Retailers should focus on supply chain resilience and financial stability. Trade wars could lead to higher interest rates, affecting leveraged companies. Operations officers should streamline supply chains to manage risks better. Modern supply chains are efficient but vulnerable to disruptions, as seen during Covid-19. Retailers need to build redundancies to mitigate risks from global supply chain issues.

As a result, retailers should diversify their export markets and minimise reliance on a few countries for imports. Even if this might impact large, international businesses more, domestic retailers are also vulnerable to global supply chain issues and should plan ahead to ensure they mitigate any potential risk.

Lastly, CFOs of retailers should review their company's capital structure to ensure resilience in a potentially volatile economic environment. Balancing trade wars and banking deregulation will be crucial for navigating future challenges.