Increasing retail sales in January and improving consumer confidence in February could point towards more optimism in the UK economy, however, concerns persist about slow economic growth and the threat of US tariffs.
UK retail sales rose 1.7% in January on a monthly basis, exceeding analyst estimates of 0.3%, according to official figures released by the Office for National Statistics. In contrast, retail sales dropped 0.6% in December 2024.
January’s figure was mainly driven by food sales increasing 5.6% compared to December, which was the highest growth since March 2020. This was primarily because of higher supermarket sales, as well as more sales in specialist food stores like bakers and butchers.
Higher tobacco and alcohol store sales also contributed to January’s retail sales.
However, non-food store sales decreased 0.6% in January, compared to December, along with household goods, footwear, textile clothing and automotive fuel sales. Excluding fuel, retail sales inched up 2.1% in January from December.
UK retail sales also advanced 1% on an annual basis in January, exceeding market expectations of 0.6%. However, this was a marked downturn from December’s 2.8%.
‘Cup half full kind of day’ – analyst reaction
Danni Hewson, head of financial analysis at AJ Bell said: “Today feels like a cup half full kind of day, though it will depend on your personal circumstances whether you are feeling optimistic or pessimistic about the economy and your own finances.
“After a torrid quarter for the retail sector at the end of 2024, sales in January picked up considerably, but consumers were still cautious and still spending primarily on essentials.
“As December’s cheer gave way to January’s gloom, people hunkered down at home, opting to cook for themselves. This bolstered supermarkets and speciality food stores which experienced the largest sales jump since lockdowns forced people to stay indoors.
“This time it was cash not Covid which appeared to force people’s hand – a separate survey on consumer confidence shows people are minded to save rather than spend, putting a bit aside for a rainy day. That lack of confidence was a factor behind a fall in non-food sales, with people choosing not to splurge on big-ticket items or even a new wardrobe staple.”
UK consumer confidence inches up in February
The GfK consumer confidence index edged up to -20 in February 2025, up from -22 in January, exceeding analyst expectations of -22 as well, according to official figures by the GfK Group.
This pointed to a marginal improvement in confidence, suggesting that households were slightly more optimistic about the wider economic outlook, as well as their personal finances.
Falling interest rates have also helped this situation somewhat, although economic uncertainties caused by US president Donald Trump’s tariff threats remain, along with worries about slow economic growth and sticky-high inflation.
Neil Bellamy, consumer insights director at NIQ GfK said: “In contrast to last month when all five core measures were down, this month they are all up. The biggest improvement is in how consumers see their personal finances for the coming year with an increase of four points that takes this measure out of negative territory to +2. The Bank of England interest rate cut on February 6th will have brightened the mood for some people, but the majority are still struggling with a cost-of-living crisis that is far from over.
“Prices are still rising above the Bank of England’s target; gas and electricity bills remain a challenge for many households. So, it’s no surprise that consumer views on the general economic situation are still lower than 12 months ago, suggesting that people don’t expect the economy to show any dramatic signs of improvement soon. Politicians looking for bright spots on the horizon will be disappointed.”
