It will take until the second half of 2024 for UK retailers to feel the benefit of slowing inflation, analysts believe.
Food and energy prices, the two biggest drivers of inflation over the last few years, are expected to ease over 2024.
When the energy price cap is introduced in April this year, inflation is expected to ease to 2%, according to UK broker Stifel.
This is expected to lead to an uptick in consumer confidence, building on an already strong start, and could help improve spending across the industry.
However, retailers will have to wait until the latter half of the year to see sales lift, largely due to the wait for interest rates to fall, Stifel added.
Ahead of the upcoming tailwinds, Stifel has issued 'buy' ratings for B&M European Value Retail SA (LSE:BME), Moonpig Group PLC (LSE:MOON), DFS Furniture PLC (LSE:DFS), Dunelm Group PLC (LSE:DNLM) and Marks Electrical Group PLC (AIM:MRK).
It remains a seller of both ASOS PLC (LSE:ASC) and Boohoo Group PLC (AIM:BOO) while placing Next PLC (LSE:NXT) on 'hold'.
Despite the lack of love towards e-commerce retailers, Stifel noted online festive trading was “a more positive performance” with volumes lifting over 1%.
Clothing suffered the biggest drop in volumes in December, falling by 6.5%, while household goods and general store items fell by 3.5% and 4.5% respectively.