Switching on the Christmas lights in London's world famous Oxford Street is usually a jubilant time for U.K. retailers, but this year the holiday season is full of uncertainty that could roll on into the new year.
"Retailers are more paranoid this year than they usually are," Keith Richardson, head of retail for Lloyds Bank, told CNBC over the phone Tuesday.
The season is traditionally important for retailers, given their sales volume tends to go up significantly, thus boosting their yearly performance. But this year "there's an underlying moment," Richardson said, a "high degree of nervousness that is making planning even more difficult."
The U.K. economy is experiencing a unique situation. Though it is close to full employment, which technically means that consumers are in a position to spend; inflation is relatively high, wage growth has stagnated and uncertainty over Brexit is making people reluctant to spend, mainly when it comes to big-ticket items, such as cars.
Data released Tuesday showed U.K. retail sales tumbling in October as consumers opted for outdoor experiences rather than shopping. According to the British Retail Consortium, in-store sales of non-food items dropped 2.9 percent in the three months to October and 2.1 percent from a year ago. Online sales were also down.
This year's Christmas shopping period is retailers' key to survive.Keith RichardsonHead of retail for Lloyds Bank
Unseasonably warm weather was one of the main reasons stopping consumers from getting new clothes. But overall, "real consumer spending power has been on a downward trend in the last year as the acceleration in inflation has caused shoppers to become ever more cautious in considering what purchases they can afford," Helen Dickinson, chief executive of the British Retail Consortium, said in a statement.
Following disappointing profits in the recent earnings season from top U.K. retailers, the holiday season will be even more important to try to fix their books.
Marks & Spencer reported Wednesday a pretax profit of £219.1 million ($288.1 million) for its first half of the year compared with £231.3 million in the same period a year ago, due to lower clothing and homeware sales.
Last week, shares of Next tumbled after missing sales forecasts and warning against an "extremely volatile" trading environment.
Richardson told CNBC that this year's Christmas shopping period is retailers' "key to survive."
"If they have a bad Christmas, then they know they will have a difficult first quarter (of 2018). But if they can get a good momentum over Christmas that will transpire into the new year," he added.