Real-world demand does not operate in isolation. It is shaped by macroeconomic forces, specifically macroeconomic forces shaping retail demand, and social forces that change how, when, and where people buy. In today’s volatile economy, ignoring these signals means planning with only half the picture.
In our last article, The Power of External Data: Why Good Planning Goes Beyond Your Internal Data, we explored why relying solely on internal metrics leaves forecasting gaps. Today, we look at five macroeconomic forces currently shaping retail and supply chain demand in 2025, why they matter, and what retailers should expect next.
1. Regional House Price Trends
House prices are a strong indicator of household wealth and consumer confidence. When property values rise, homeowners often feel secure, increasing discretionary spending on categories such as homeware and furnishings. When prices stagnate or fall, particularly in expensive regions like London, households tighten budgets and focus on essentials.
What is happening now: According to the UK House Price Index, whilst, overall, London house prices rose 2.6% in April (gov.uk), inner-London prices have fallen for six consecutive months (Evening Standard). This divergence means retailers often benefit from more granular, region-specific demand planning; they might expect premium demand resilience in affluent postcodes, whilst value-focused growth accelerates in areas under affordability pressure.
What this means next: If regional house prices continue to diverge, retailers will need to localise promotional strategies and inventory allocation to avoid overstocks in low-growth regions and stockouts in premium markets.
2. Grocery Price Inflation
When essential food costs rise faster than wages, households reallocate budgets. Grocery inflation directly affects discretionary spending, leading consumers to cut back on apparel, electronics, and leisure purchases. Shoppers often switch to own-label products, creating SKU-level forecasting challenges.
What is happening now: UK grocery inflation currently stands at 5.2%, its highest level since early 2024, adding £275 annually to average household bills (The Guardian). This sustained pressure is reducing non-essential spending and forcing retailers into deep promotions, which increase operational volatility in fulfilment and replenishment.
What this means next: Retailers should prepare for sustained price sensitivity and margin compression. They should expect greater volatility during promotional cycles and increased complexity in demand forecasting, fulfilment, and replenishment.
3. Consumer Confidence Index
Consumer confidence is a leading indicator of spending intent. Low confidence results in delayed purchases and cautious shopping, while high confidence triggers increased discretionary spend.
What is happening now: The GfK index has improved slightly from −23 to −18 (Trading Economics), whilst Deloitte notes the first quarterly dip since 2022, signalling renewed caution (Retail Gazette).
What this means next: Expect slow recovery in big-ticket spending and continued reliance on discount-driven behaviour. Retailers should be cautious about over-forecasting sales rebounds, as consumer caution remains despite incremental confidence gains.
4. Interest Rates and Credit Conditions
Interest rates influence household borrowing costs, shaping disposable income and spending habits. Higher rates suppress big-ticket purchases such as home improvement and furniture, whilst lower rates can unlock sudden rebounds.
What is happening now: The Bank of England cut the base rate from 4.5% to 4.25% in May (MoneySavingExpert), with analysts currently expecting two further cuts later this year (MoneyWeek).
What this means next: Retailers should plan for softer demand in big-ticket categories during the summer but prepare for a potential surge in Q4 if rate cuts improve affordability and confidence. Agility in stock planning and workforce scheduling will be critical.
5. Sustainability and ESG Pressures
Sustainability is no longer optional. Consumers are increasingly selective about environmental and ethical standards, whilst regulations make ESG compliance mandatory. Brands that fail to meet these expectations risk losing market share to competitors who do.
What is happening now: The UK’s new Sustainability Reporting Standards (SRS) and public procurement mandates are increasing compliance requirements (Barnes Roffe). Compliance now affects everything from emissions reporting to packaging recyclability. ESG is becoming an operational imperative, not a marketing exercise (Knight Frank).
What this means next: Expect demand for sustainable products to grow across multiple segments, even in value-conscious categories. Retailers should invest in ESG data infrastructure, reverse logistics capabilities, and supply chain transparency. Planning must include regulatory risk and sustainability-driven demand shifts.
Why These Signals Matter
Each of these forces has a dual impact. They reshape consumer demand, influencing what people buy, where, and at what price point. They also alter operational complexity, from inventory flows and workforce planning to compliance and last-mile delivery.
These factors illustrate why internal data alone is insufficient. By the time you see the effect of grocery inflation or interest rates in your sales data, it is often too late to react effectively.
At Predyktable, we model over 30,000 external signals, including these five and thousands more, to track patterns, understand interdependencies, and predict demand. This allows retailers to plan proactively, not reactively, even in a volatile economy.
The Bottom Line
Demand forecasting in 2025 is not about looking back, it is about looking around. Retailers and supply chain leaders who combine internal and external intelligence will make sharper decisions and navigate uncertainty with confidence.