Last year’s Christmas season was the weakest for retailers since 1998, with elevated inflation and reduced consumer spending power leading to a significant cutback in festive expenditure. This continued a trend of problematic recent festive periods for retailers. Christmas 2020 was significantly impacted by pandemic-related restriction measures, which reduced retail sales. 2021 was on the stronger side, as the economy experienced a resurgence in demand, though was still weak in comparison to pre-Covid trends.

This has been troubling for the sector, given the importance of the period for sales. The final months of the year are known as the ‘Golden Quarter’ and account for a disproportionate share of activity for retail businesses. Over the past 20 years, more than a fifth of all retail sales have come in November and December alone.

Considering the macroeconomic landscape in 2023, households have contended with another year of historically elevated inflation, putting pressure on their spending power. Interest rates have been on the rise in an attempt to counter this inflation, adding further to living costs for certain demographics. Meanwhile, the retail sector has struggled, with sales volumes having been on a downward trend for much of the year. There are some shoots of positivity, however, including historically elevated earnings growth and the relatively robust labour market. The recent return to near-term improvement in spending power revealed by Cebr’s Income Tracker research and continually net positive readings on our Consumer Confidence Index with YouGov provide further cause for mild optimism.

A key question is how the combination of these factors will impact retail activity this Christmas. Cebr has run the figures, suggesting that festive expenditure will be stronger than last year.[1] In nominal terms, the average household is projected to spend £550 this Christmas, up from just £480 in 2022. This equates to real expenditure of £450 in 2023, relative to £410 in 2022.[2]

Looking at the five-year pre-pandemic trend, nominal festive spending amounted to an average of £540, while the figure in real terms was £560. The fact that expenditure in 2023 is expected to be higher than the nominal pre-pandemic average but lower in real terms signals that consumers are now paying more to receive less. For households to have the same Christmas as they did in 2019, they would have to spend an extra £118 this year.

In terms of the components of the festive expenditure basket, food is expected to be the main contributor to the uptick in nominal expenditure this year. Food price inflation has been elevated for some time, remaining in double-digit territory as of October and putting significant pressure on household spending power more broadly. Food is also the single largest component of the festive expenditure basket.

Cebr expects the average household to spend £135 on food this Christmas, up by £26 in nominal terms compared to 2022. In relative terms, alcohol is expected to see the largest increase in festive expenditure in 2023. The average household is projected to spend an additional 26.4% on alcohol this year, though, at £26, this is a relatively small spending category. Other key components of the festive basket, including toys, games, and clothing, are expected to see expenditure around a fifth higher in 2023 than was the case in the prior year.

Source: Cebr analysis

Table 1: Nominal value of Christmas expenditure by consumption category, current prices

Source: Cebr analysis

Cebr’s expectation of a stronger Christmas is supported by recent survey data. For instance, recent figures from Deloitte suggested that a greater share of consumers were planning to increase their festive expenditure relative to this time a year ago.[3]

Despite mounting evidence that consumers are becoming more wary about increasing their spending, the trend looks set to be bucked this Christmas. After a few years of disruption to festivities from the pandemic, it seems that people will not let cost stop them from celebrating the holiday period this year. However, the impact of inflation means that consumers are spending much more and ending up with less.

[1]‘Festive expenditure’ is here described as additional household spending in November and December, over and above regular month-to-month spending. Regular monthly spending is taken to be the average spending across the other months of the year, that is, January to October.

[2] Real terms values are expressed in constant 2019 prices throughout. Nominal values are expressed in current prices for the particular reference year.

[3] Deloitte Consumer Tracker

For more information, please contact:

Sam Miley, Managing Economist & Forecasting Lead
Email: smiley@cebr.com, Phone: 020 7324 2874

Cebr is an independent London-based economic consultancy specialising in economic impact assessment, macroeconomic forecasting and thought leadership. For more information on this report, or if you are interested in commissioning research with Cebr, please contact us using our enquiries page.