Higher income shoppers will keep spending

Analyst Caroline Gulliver said she favoured those retailers with highest exposure to the home-owning consumers aged 45 and over.

She said: “Older, higher income consumers have been more resilient than most.”

M&S is one of the key beneficiaries, with a similar demographic to John Lewis she said. But DIY retailers and electrical specialists should also benefit. “At current valuations we would buy M&S, Kingfisher and Dixons,” she added.

Gulliver maintained the demographic group most likely to “accept” inflation were over-45s who own their homes. She said they were “most able to deal with inflation as they are less exposed to the welfare cuts that are set to negatively impact the over-35 renter demographic,” she said.

Older, lower income consumers have become “most nervous about the impending impact of austerity measures”, she said. Argos’ high exposure to that group makes parent Home Retail a key sell.

Gulliver is neutral on the retail sector as a whole. She said: “We anticipate consumer confidence will improve through 2011. Consumers have become overly bearish in our view and we expect the immediate financial impact of any rise in interest rates will be muted.

“We do not think sales and profits will fall as dramatically as some fear and not as uniformly across the sector.”