In January 2025, UK retail sales rose by 1.7% on a monthly basis, significantly surpassing analyst forecasts of 0.3%. This unexpected surge was primarily driven by an impressive increase in food sales and growing consumer confidence. The latest figures provide a glimmer of hope for the UK economy, which has faced numerous challenges over the past year.
Excluding fuel, retail sales increased by 2.1% from December. The Bank of England's recent interest rate cut on February 6th has contributed to improving consumer sentiment. The GfK consumer confidence index edged up to -20 in February from -22 in January, exceeding analyst expectations and marking a positive shift in consumer outlook.
Food sales led the charge with a 5.6% increase compared to December, marking the highest growth since March 2020. Higher supermarket sales and increased activity in specialist food stores such as bakers and butchers fueled this growth. In contrast, non-food store sales saw a slight decline of 0.6% in January, with sectors like household goods, footwear, textiles, clothing, and automotive fuel experiencing reduced sales.
"In contrast to last month when all five core measures were down, this month they are all up." – Neil Bellamy, consumer insights director at NIQ GfK
Despite the positive movement in food sales and consumer confidence, challenges remain. Prices continue to rise above the Bank of England's target, with gas and electricity bills posing a persistent challenge for many households. The cost-of-living crisis remains a significant concern, as many families struggle to cope with high prices.
The biggest improvement came from how consumers perceive their personal finances for the coming year. This measure increased by four points, pulling it out of negative territory to +2, indicating a more optimistic outlook among consumers.
"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." – Danni Hewson, head of financial analysis at AJ Bell
On an annual basis, UK retail sales advanced by 1% in January, outpacing market expectations of 0.6%. However, consumer views on the general economic situation remain lower than they were 12 months ago. This suggests that while there are signs of recovery, people do not expect dramatic improvements in the economy soon.
Higher sales in tobacco and alcohol stores also contributed to January's retail performance. Nevertheless, experts advise caution, noting that the cost-of-living crisis is far from resolved.
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