UK Consumer Spending Sees Fastest Growth in Nearly Two Years

Consumer spending in the UK saw its strongest growth in nearly two years last month, offering a boost to economic sentiment despite ongoing financial pressures, according to two key industry surveys.

The British Retail Consortium (BRC) reported a 2.6% year-on-year increase in retail sales for January, doubling the 1.2% growth recorded in the same month last year. Meanwhile, Barclaycard data showed a 1.9% rise in credit and debit card spending, the highest since March 2024—though still below the 2.5% inflation rate.

Signs of Increased Consumer Confidence

One of the most encouraging signs from the data was a 2.7% surge in discretionary spending, indicating that households are beginning to spend more freely following sustained wage growth. However, household savings rates remain higher than pre-pandemic levels, suggesting that some consumers remain cautious about the economic outlook.

While food sales grew by 2.8%, this was significantly slower than the 6.1% increase seen in January 2023. Instead, spending on home goods, health and beauty products, and digital subscriptions helped drive the overall retail performance.

Economic Uncertainty and Rising Business Costs

The rise in consumer spending comes at a time of growing economic uncertainty. Last week, the Bank of England cut its 2025 GDP growth forecast from 1.5% to just 0.75% and reduced interest rates to 4.5% in an effort to support the economy.

Helen Dickinson, chief executive of the BRC, said seasonal discounts on furniture, bedding, and home accessories attracted shoppers and contributed to the growth in sales. However, she warned that businesses face mounting financial pressures, particularly with the upcoming 6.7% rise in the minimum wage in April and a £25 billion increase in employers’ national insurance contributions.

“Many businesses will be left with little choice but to increase prices, and cut investment in jobs and stores,” Dickinson said.

The Bank of England also noted that companies are preparing for lower profit margins, as the cost of employing lower-paid staff is expected to rise by 5%.

Leisure and Hospitality Spending Remains Resilient

Despite these financial challenges, spending on leisure and hospitality remained strong. Barclaycard reported a 2.6% increase in spending at pubs, bars, and restaurants in January, even as one-third of consumers opted to cut back on alcohol consumption.

While the data signals encouraging signs for retail and leisure industries, the impact of rising costs and economic uncertainty remains a concern for both businesses and consumers in the months ahead.