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Retail sector valuations unlikely to recover as the economy improves

Historical data suggests there will be no significant growth in real retail spend within the economy as it recovers. There is no compelling reason for a rebound in value for many companies in the UK retail sector when the UK economy returns to more robust health.

Despite the boom years of the 1990s and 2000s, which saw strong growth in consumer spending, the value of total retail spend in the UK since 2002 has actually been flat on a real basis according to ONS data (see figure 1).

The growth in consumption largely came through increased spending on services (such as gyms, foreign holidays, restaurants) rather than on consumer goods.  Even over a longer timescale, growth in real retail spending has been weak, growing since 1990 at only 0.9% per year on average, half the rate of the overall UK economy over the same period.