Retail sales growth of 2% forecast for 2015 amid election uncertainty

Retailers are also likely to face pressure on margins next year as the cost of doing business online takes a toll.

Retail sales are expected to advance by 2% at most in 2015, according to the KPMG/Ipsos Retail Think Tank.

The looming general election, along with renewed turbulence in the eurozone and possible interest rate and VAT rises, are among factors that may spook consumers.

KPMG head of retail David McCorquodale said: “2015 will see some growth but retailers will do well to break through the 2% barrier. 

“There are multiple factors which could knock sales off course, including concern around the general election and an interest rate rise.

“There is undoubtedly growth coming through online sales, but this is a double-edged sword. Online sales have a higher cost to serve, putting even more pressure on retailers’ margins.”

Retail Think Tank member and retail consultant Nick Bubb said: “The outcome of the election seems likely at this stage to be messy and inconclusive, which will do little to help consumer confidence.

“Whoever is in power, a rise in VAT looks almost inevitable by the end of the year.

“It is an unfortunate truth that one of the easiest taxes to generate enough revenue to help with the Government deficit is VAT.

“The current 20% rate is a little below VAT rates in some parts of Europe, with the 23% VAT rate in Ireland one benchmark to consider.”

Food retailers, already engaged in a fierce price war, are expected to continue to face especially tough conditions in 2015.

Retail Think Tank member and Nielsen UK head of retailer and business insight Mike Watkins said: “The food sector remains embattled with fierce competition, so sales are likely to be flat at best and may even fall by up to 1% in value terms.

“Deflation is going to be a big concern for at least the first part of the year and will keep many CEOs awake at night, and FMCG volume growths may enter a third year of decline.”