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.
Data 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. Analysts said the improvement reflected shoppers delaying spending before Christmas to take advantage of 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.”
Discounting was a key factor in the rebound. Linda Ellett, UK head of consumer, retail and leisure at KPMG, said personal electronics, furniture, and children’s clothes and toys performed particularly well. New Year resolutions also encouraged spending in health-focused categories, including wellness foods and drinks.
Food sales rose by 3.8 per cent compared with January last year, up from 2.8 per cent previously, while non-food sales increased by 1.7 per cent year-on-year.
Despite the boost, the data offered limited comfort to retailers concerned about tight profit margins. Heavy discounting suggests that underlying consumer confidence remains fragile, and the sector faces ongoing pressure from rising costs.
Retail volumes remain 1.5 per cent below pre-pandemic levels, according to the Office for National Statistics. Official figures showed December sales grew by only 0.4 per cent, highlighting the uneven recovery across the sector.
Consumer spending is a major driver of UK economic growth, and weakness in retail demand has weighed on GDP since the pandemic as households contend 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 starting in March. Rates were reduced four times in 2025 to 3.75 per cent, the lowest level in three years.
The Bank of England forecasts that inflation is likely to return to its 2 per cent target by spring, but it also expects unemployment to rise to 5.3 per cent this year, a post-pandemic high that could dampen consumer confidence. Retailers are additionally 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.
Take-up of industrial and logistics space in Dublin in Dublin increased by 81% in 2025, highlighting a broader pattern of economic resilience in certain sectors, even as consumer-facing industries navigate inflationary pressures and changing household spending patterns.
January’s rebound offers tentative signs of recovery, but economists caution that retail growth remains closely tied to interest rates, household incomes, and consumer confidence in the months ahead.
