High street resilient, but weakness persists elsewhere (Apr 09)

Retail sales have lost some of their shine, but are still performing rather better than might be expected given the economic backdrop. However, spending off the high street is certainly still suffering. And we continue to think that the high street faces a renewed period of weakness before long. Disposable incomes have been boosted by falling interest payments and inflation. But slowing pay growth and rising unemployment will increasingly offset this boost. In addition, rising job insecurity and concerns about future tax rises means that any extra income is likely to be saved. We still think that consumer spending will fall by around 3.5% in real terms this year, although the drop in retail sales now looks set to be slightly smaller than this.