Consumer confidence will be in the spotlight this week when retailers including Next, Debenhams and Sainsbury’s publish figures.
Lower utility bills and discounting from struggling retailers is set to generate another fall in the rate of inflation when official figures are published by the Office for National Statistics on Tuesday.
The consumer prices index is forecast by brokers at Investec Securities to fall to 3.2 per cent in February from 3.6 per cent in January as energy cuts by E.ON and Scottish Power came into effect.
Non-food retailers also continued to slash prices in the month, according to the British Retail Consortium, as they battled to pull in cash-strapped consumers.
The dip in the CPI rate of inflation will continue the downward trend experienced in recent months and matches forecasts by the Bank of England, which predicted that the rise in cost of living would ease throughout 2012.
However, Victoria Cadman, economist at Investec, warned February’s inflation outturn is “unlikely to be without some upward pressures too” with food and fuel prices appearing to have recorded firmer month-on-month rises.
The easing rate of inflation will be welcomed by households who were squeezed by high inflation and sluggish wage growth throughout 2011.
The data will add further weight to the Bank’s decision last month to pump an extra £50 billion into the economy through its quantitative easing programme.
Bank governor Sir Mervyn King and his colleagues have forecast the rate of inflation to dip below the Government’s 2 per cent target at some point in early 2013.
But some economists have suggested CPI could slide to nearly 1 per cent as early as the final three months of 2012.
Supermarket giant Sainsbury’s will reveal how far it has capitalised on Tesco’s woes in its fourth quarter trading update on Wednesday.
Sainsbury’s, the UK’s third biggest grocer with more than 1,000 stores, had a stronger Christmas period than its number one rival and recently nudged up its market share as Tesco’s was chipped away.
But the group still faces an ongoing squeeze on consumer spending, albeit one that is loosening its grip, while robust competition from the rising popularity of discount chains including Lidl, Aldi and Iceland also presents a threat.
Analysts expect the supermarket to report like-for-like sales of 2.1 per cent for the fourth quarter, although comparisons with rival supermarkets will be difficult because of different trading periods.
Tesco’s fortunes in the UK have been far worse, however, with UK boss Richard Brasher stepping down on Thursday amid falling sales and market share.
The UK’s biggest grocer triggered a price war last October with its £500 million Big Price Drop - but has since admitted the strategy was a flop.
Sainsbury’s, however, said its Brand Match scheme - a guarantee that if an identical basket of branded goods could be bought more cheaply in Asda or Tesco, a coupon will be given at the till for the difference - was a hit and will continue into 2012.
The group has benefited from strong general merchandise sales, such as clothing, including a range designed by fashion presenter Gok Wan, as well as DVDs and homeware, while its rivals have had less success in this area.
The City will be looking for an update on its aggressive drive to open convenience stores across the country, after announcing plans to continue expansion throughout 2012.
B&Q parent Kingfisher will hail the first phase of its business strategy when it reveals a 19% rise in annual profits to around £800 million on Wednesday.
One of the strategy objectives, set in 2008, was to drive up B&Q’s profits, which four years ago were £106 million but are forecast to be around £234 million for the year to January 31.
The company has now reached the end of the first part of its plan and is preparing to move into the next phase, which will include rolling out new products exclusive to Kingfisher, as well as adding new stores and digital channels.
The company, which has 856 stores worldwide, including 330 B&Q outlets in the UK, has said it believes there is potential for more than 1,100 stores over the long term, including more in Russia and China.
Kingfisher had a strong 2011, despite a drop in sales of home improvement and heating products in the UK, as it enjoyed strong growth in its overseas division, which includes Castorama and Brico Depot.
Assad Malic, analyst at Credit Suisse, said: “We expect the full year results to demonstrate the ongoing benefit of internal self help and market share gains, despite a challenging environment.”
Shares in Kingfisher have climbed around 50 per cent since a low point in July.
The group will look back at the first stage of its strategy and highlight where it has met its targets, which also included turning around its Chinese business, expanding in France and entering Eastern Europe.
More detail is expected on the second prong of the strategy - dubbed “creating the leader”, including where the group might expand the business and how it plans to execute its in-store advice service.
The company recently announced a management shake-up that will see UK and Ireland boss Euan Sutherland take on a chief operating officer role spanning the whole company, although he will retain charge of the Screwfix brand, while finance director Kevin O’Byrne will take over running B&Q.
High street retailer Next grappled with a disappointing Christmas, adverse weather and a consumer spending squeeze last year but is still expected to unveil higher profits.
The clothing chain, which has 520 stores, is forecast to report pre-tax profits between £558 million and £572 million in the year to January 31, compared to £551 million the previous year, which at the top end would mark a 4 per cent increase.
The group has been propped up by strong growth in its online Directory business, which is forecast to deliver more than £1 billion in sales for the full year, while its high street sales have struggled.
Last-minute festive purchases failed to prevent sales falling 2.7 per cent on a year earlier between August and Christmas Eve, although there was a strong response to the end-of-season sale, when goods were at half price or less.
The milder weather in October and November also hit the group’s performance as higher temperatures put consumers off buying winter wear and distracted them from shopping.
Next has already reassured it does not expect to hike prices this year after cotton and wage costs caused prices to rise in 2011, but the City will be interested in seeing if this remains the case.
The group, which has been one of the best-performing stocks in the FTSE 100 Index over the past year, surging more than 55 per cent in the last 12 months.
But analysts have warned the focus is likely to be on where Next is heading through 2012 and into the following year, after the business said profits are likely to be fairly flat.
Jean Roche, analyst at Panmure Gordon, said: “The focus will be on any new guidance for the full year to 2013. With stable year on year selling prices and a very favourable input pricing environment, we think that guidance is probably too conservative.”
Fashion house Ted Baker’s recent strong performance will pave the way for it to follow in the footsteps of luxury fashion brands Burberry and Mulberry by expanding rapidly overseas.
The group, which will provide full-year results on Wednesday, recently said it enjoyed a stellar performance over Christmas when sales rose 15.7 per cent in the eight weeks to January 7.
Unlike many of its rivals, Ted Baker, which has 31 wholly-owned stores, 144 concessions and nine outlet stores in the UK, did not have to put on special offers to drum up trade and sold all of its stock by the end of the season.
Alistair Davies, an analyst at Oriel Securities, expects the group to report a 9 per cent rise in profits to £26.3 million in the year to January 28, on sales up 13 per cent to £213 million.
He believes the group’s solid performance will allow it to ramp up an expansion overseas and said it “is about to change gear”, with “the real excitement to come from overseas”.
It already has 24 stores in the rest of Europe, 15 US stores and 23 stores in the Middle East, Asia and Australia, but the UK and Europe retail operation currently accounts for the bulk of its sales.
He thinks Ted Baker, which he says is in the quality end of the mainstream market, will move into the premium end and will benefit from the same trends that have buoyed Burberry.
These have seen ‘travelling luxury consumers’ including wealthy tourists from emerging markets, drive demand for high end goods in some of the world’s biggest cities.
The group is set to open a store on Fifth Avenue in New York in the middle of 2012 as well as its first stores in Tokyo this month and Beijing in June.
Online growth and exclusive ranges are expected to help Debenhams report resilient sales on Tuesday.
The company, which has 170 stores in the UK, Ireland and Denmark, recently said a strong Christmas performance left trading in the 18 weeks to January 7 level on a year ago.
Shares have risen 20 per cent so far in 2012 reflecting its resilient performance and hopes it will announce a share buy-back programme to return money to investors.
Since its last update, industry surveys have shown that non-food sales volumes have continued to contract in the new year as consumers rein in spending.
But analysts think an update on trading to the end of February will reveal that Debenhams has managed to hold its sales steady.
Online sales grew 35 per cent in its last update and are expected to have continued this trend, while its Designers at Debenhams labels, including ranges by John Rocha and Jasper Conran, help give it a point of difference with competitors.
It has been quick to put on promotions in recent months, with its latest event earlier this month offering 25 per cent off new ranges.
Matthew McEachran, an analyst at Singer Capital Markets, forecasts flat like-for-like sales in the final weeks of its first half.
He thinks profits will fall 5.5 per cent to £122 million in the first half as it puts on promotions although a stronger recent performance could reduce the fall.
In the longer term it could benefit from the recent collapse into administration of La Senza and Barratts Priceless footwear.