Retail spending picked up sharply in January as consumers flocked to post-Christmas sales, offering some relief to a sector hit by a subdued festive period and rising employment costs.
Figures from the British Retail Consortium (BRC) and KPMG showed that retail sales increased by 2.7 per cent year-on-year last month, up from growth of just 1.2 per cent in December.
The improvement suggests that many shoppers delayed spending before Christmas and instead waited for deeper January discounts.
Helen Dickinson, chief executive of the BRC, said: “A drab December gave way to a brighter January as retail sales picked up pace. Many shoppers had held off Christmas spending and waited for the January sales, with the start of the new year showing the strongest growth.”
Linda Ellett, UK head of consumer, retail and leisure at KPMG, said discounting proved decisive. “January sales enticed consumers to spend, with personal electronics, furniture, and children’s clothes and toys among the best-performing categories,” she said.
She added that New Year resolutions had also driven spending in health-related categories, including wellness-focused food and drink.
Food sales rose by 3.8 per cent compared with January last year, up from annual growth of 2.8 per cent previously. Non-food sales increased by 1.7 per cent year-on-year.
However, the data will provide limited comfort to retailers concerned about margins. The reliance on heavy discounting to stimulate demand suggests that underlying consumer confidence remains fragile.
According to the Office for National Statistics, retail sales volumes are still 1.5 per cent below pre-pandemic levels. Official figures showed sales rose by only 0.4 per cent in December.
Consumer spending is a major driver of UK economic growth, and weakness in retail demand has weighed on GDP since the pandemic, as households grappled with rising living costs and higher borrowing rates.
Financial markets expect the Bank of England to cut interest rates two or three times this year, potentially beginning as early as March. Rates were reduced four times in 2025 to 3.75 per cent, their lowest level in three years.
The Bank’s latest forecasts indicate inflation is likely to return to its 2 per cent target by the spring. However, the central bank also expects unemployment to rise to 5.3 per cent this year, a post-pandemic high, potentially dampening consumer confidence.
Retailers are also contending with higher operating costs following the Labour government’s £25 billion increase in employer national insurance contributions and further rises in the minimum wage.
With official GDP data for the final quarter of last year due later this week, January’s rebound offers tentative signs of resilience — but the sector’s recovery remains closely tied to interest rates, household incomes and the strength of consumer confidence in the months ahead.
